Sunday, December 18, 2011

The tech bubble is not a bubble

by James Altucher for TechCrunch.com 
There’s no bubble 2.0.
And while I’m at it: there was never a bubble 1.0.
Let me explain.
A bubble occurs when an asset moves up today only because it moved up yesterday. Think about it. I’m not going to define it more than that.

The Internet went up in 1999 because now, 12 years later, everyone on the planet uses the Internet. And many Internet 1.0 companies: Ebay, Amazon, let’s throw in Apple, lets even throw in Google although it was late to the game, and a slew of others, are at all-time highs in value and create tens of billions in earnings. Because they are real.

Why are they at all-time highs? Because everyone was right about the Internet. Everyone did eventually start using it. It did make commerce easier throughout the world. It did make corporate IT easier. It did allow companies to fire parts of their workforce because they are now replaced by easy to use technology (the real reason for the now probably permanent 8-9% unemployment we have: every corporation used 2008-9 as an excuse to fire the dead weight the Internet created in their workforce. I’ve had Fortune 100 CEOs admit this to me: “well, everyone was firing people. So finally we were able to.”) Just like when cars appeared we were able to fire all the people who rode horses.

Internet usage went from 30 million people to 2 billion people worldwide. That’s not a bubble. Groupon, no matter what you read about their stock, their moat, their people, their competition, their model (“its a coupon business”), is the fastest growing company in revenues in world history and it started in November, 2008.
Zynga is another one of the fastest growing companies in world history.
Facebook has 800 million users and is slowly but surely figuring out how to extract $2-$3 a year from every customer (which will give it a value of about $100 billion).
Facebook is a mini-Internet. It’s an organized Internet. We’ve all moved our “home pages” to be our “Facebook pages”. Companies flash their Facebook page on their commercials now instead of their own websites.

So imagine the value of the entire Internet. Discount it just a little. That’s Facebook. Or maybe Facebook + Twitter + Google. And then everyone who builds tools to service those behemoths. That’s dot-com 2.0. It’s not a bubble.
So why does everyone call dot-com 1.0 a bubble? Wasn’t it? Wasn’t there pets.com? And a sock puppet?
A venture capitalist might invest in 20 companies. 10 might be zeros. 5 might be losses. 3 might be small wins. One or two might be home runs. That’s different from the normal everyday investor portfolio where everyone expects all of their stocks to go up.
In 1999-2000, the public was given the chance to have a venture capitalist-style portfolio. It didn’t work. And in anger it was called a “bubble” and then a “bust”. Tulips! they said. Tulips don’t have $80 billion of cash in the bank like Apple does. Tulips never had $43 billion in revenues like Amazon does.

Venture capitalists will wait five to ten years for their payoff. The average investing public will wait five to ten minutes or it’s a bubble. Again: the dream came true: the Internet actually did bloom to billions of users. That’s not a tulip garden.

Read the entire article: Facebook Shareholders Suck…(Or, Why This Is Not Bubble 2.0) by James Altucher for Techcrunch.com

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