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Business Management

Ten Reasons Why the Tech 'Bubble' Won't Pop

Some observers and analysts who experienced the dotcom boom in the late 1990s are looking at the current situation and finding many similarities. So is this another tech bubble that will burst spectacularly somewhere down the line, or is there more to it? Here are 10 arguments commonly given for this being another bubble, along with possible counter-arguments.

 

1. We've been through all this before, in 1999/2000.

No, we haven't. The web was less than 10 years old at that point, and had barely begun to impact on most people's lives. There was a lot of froth, dross and nonsense in tech stocks, many of which were deservedly re-valued at zero when the bubble burst. A decade and a half later, we have a clearer idea of which tech projects might succeed and which might fail. There will still be duds, but perhaps not on the same scale as before.

2. These companies have no profit – some have no revenue.

While it's true that many startup technology companies have no profit and little to no revenue for the first few years, that doesn't mean they won't succeed. To an outsider, the original business plan for companies like Amazon and Google might have looked like this:

- create internet company

- ????

- profit

But those four question marks concealed a depth of planning and strategy rarely seen before. These companies took over a niche, expanded to such a size that few others could hope to compete, and then introduced entirely new and original revenue streams. It worked for them. It might work for others.

3. But some of these companies are ridiculous! Look at Yo.

Markets don't care about subjective value judgements. Ridiculous to some, exciting or useful to others. It was once said that if you could run a business that sold items for a few pennies to everyone on the planet, you'd be rich. The internet has made that possible. Yo and others might seem ridiculous now, but that doesn't mean they won't succeed.

4. Some of these kids have never run a business before.

Inexperience might not be the barrier it once was. Business acumen is no longer in short supply, held and coveted by a minority of gurus. It's out there for everyone to use. Want to analyse your business financial information in seconds and highlight areas for improvement or growth? You can, with cheap apps that condense the accumulated knowledge of experienced business minds into a few megabytes of code.

Like the industrial revolution, developments in technology have now democratised business to such an extent that all it takes is an idea and some tenacity: the tedious leg-work is largely taken care of and the required business knowledge is only a few clicks away.

There really is all you need to know to run a business, right there online. You still need drive and luck, of course, but the third pillar – knowledge – is now almost free for anyone. Edison's genius ratio of 1% inspiration to 99% perspiration might still apply, but computers are now doing the heavy lifting for much of that 99%.

5. This is just post-crash funny money flooding into new areas.

It's true that some of the major central banks engaged in fiscal stimulus after the credit crunch. Whether you call that quantitative easing, money printing, debasing the currency or giving away fat bundles of free cash, it's certainly had an effect. However, it's probably more productive when channelled into tech companies than it was when pumping up housing bubbles (though arguably some of it is still hissing into that market too). And the fallout will be less painful if it all collapses: unlike affordable housing, nobody needs a hundred Facebook shares.

6. The market isn't big enough to support these companies.

The market is potentially seven billion people, and growing. Many of those have never known a world without the internet. It's just part of life to them, and using it is as natural as breathing. They are easier to reach than customers in any other business medium: geography is largely irrelevant. So the size of the market is unlikely to be a limiting factor.

7. Some of these people are just cocky, arrogant hipster types.

Arrogance and self-belief are strongly correlated with business success. Personal fashion statements don't change that one way or the other.

8. Bubbles always burst.

True, but that's a tautology. We only know something was a bubble when it bursts. If it never bursts, we can't define it as a bubble. Perhaps we're in the early stages of the Long Boom, and technology will continue to generate returns far greater than might seem possible now.

9. Economists say...

Economists say all sorts of things, and rarely agree on anything. Economics is not a science. It can't be, since there's no control group, no way to construct a falsifiable hypothesis. All predictions in economics are best guesses based on observation, nothing more. And they often miss new paradigms, good and bad. Just look at how many economists predicted the financial crash of the last decade.

10. It takes years to build a successful company.

That used to be true. It might not be now. Developments in technology are coming so fast that the growth curve might be exponential. If that happens, our world will change faster and faster. Businesses that might have taken decades to reach a million customers might do so in a few months now.

 

The technology market could go pop tomorrow. But it has a different backdrop and different driving factors to previous booms and busts, so comparisons are unlikely to be meaningful. Nobody can know for sure what will happen, but it's going to be interesting to watch it play out.

Disclaimer: nothing in this article represents financial or investment advice. The author has no vested interest in any technology stocks going up or down.

 

Freelance technology journalist Alex Cruickshank grew up in England and emigrated to New Zealand several years ago, where he runs his own writing business, Ministry of Prose.

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Alex Cruickshank

Alex Cruickshank has been writing about technology and business since 1994. He has lived in various far-flung places around the world and is now based in Berlin.  

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