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Ready for Tech Bubble 2.0?

It can only be a good thing that many of the employees working at the latest spate of high-tech startups aren't old enough to remember the last time grossly overvalued companies were prepping for an IPO based on nothing more than widespread obsession with the latest fad — the Internet.

This time, the obsession is social media, and a company that built its business model on 140 characters of text is valued at $7 billion. (No offense, tweeters, but are you really that interesting?)

The thing that set off this rant is an article in The Wall Street Journal. It seems that the latest talent in Silicon Valley requires tree houses, cashmere hoodies, and fake mustaches to make getting up for work every day worthwhile. According to the Journal, working at Internet startup Airbnb “is like a really fun school where you get paid,” or “maybe it's more like camp.”

Are you kidding me?

Lest you think my reaction is born of envy, let me say this for the record: I was envious back in 1999 when tech companies had concierges and people who would pick your dry cleaning up at the office. This time, it's not envy: It's outrage. The national unemployment level is approaching 10 percent, and the best and brightest we have want to work at a camp?

Here are a few more highlights from the article:

    Some Web startups are partying like it's 1999. Airbnb's housewarming later this month is to include a visit by rapper and occasional tech investor M.C. Hammer. The party room at reviews site Yelp Inc. has three beer kegs with built-in iPads to offer information about what's on tap. Last month, startups Peanut Labs Inc. and AdParlor Inc. sponsored the sold-out “Pirates of Silicon Valley Cruise,” a $600-per-person seafaring party.

    Companies say the fierce competition for talent among startups has necessitated extraordinary perks meant to attract and retain employees.

    At Facebook, the social network sponsors an annual “game day,” in which the whole company competes in schoolyard classics such as kickball and capture the flag.

    Online storage site Dropbox Inc. has a rock room where employees play guitars and drums, and another one dedicated to playing the arcade game Dance Dance Revolution.

I, like many journalists in the tech trades, benefited from the last wave of sure-fire startups. To woo writers, companies got really clever about press releases: Some came in the form of a singing belly dancer (I kid you not); some came accompanied by a product or gadget (I once got a notebook with covers made of recycled printed circuit boards); some came on a reusable disk or flash drive. We were offered jaunts to Japan and China free of charge, and the gift baskets at Christmas were outstanding. Sure, we wanted people that waited on us hand and foot (they are commonly called “interns”), but most of us were pretty happy with telecommuting and enough ad pages to support a “perfect”-bound magazine (as opposed to a stapled-together pamphlet).

I know a bunch of people who left the trades for Internet startup companies. Only one of those companies still exists today (in a completely different business model), and many of those people are self employed or, like me, trying to figure out Internet publishing. I also know people in all walks of life — construction, finance, manufacturing — who are unemployed or fighting to keep their jobs.

Maybe these startups aren't paying like they used to and require perks to retain employees. If that's the case, I'll admit I'm wrong. And there have been vastly successful Internet companies, but they are still in the minority. I am really, really worried that the industry is approaching another bubble where novelty companies that don't make anything except lines of code are worth billions of dollars. There already is a Facebook, a Google, and a Twitter, and the social media market has already faced a shakeout (remember MySpace, anyone?). I think high-tech is approaching another round of excessive investment in vapor-ware and the fallout is going to be ugly.

8 comments on “Ready for Tech Bubble 2.0?

  1. Eldredge
    July 7, 2011

    Let's see….$7 billion divided by 140 characters….comes out to $50 million per character. Does seem a little overvalued! Some of the perks you mention in the article don't seem that far out, and others seem really over the top. One hopes these companies know what they are doing.

  2. Eldredge
    July 7, 2011

    Pure speculation on my part, but this seems like a potential self-made bubble. Companies hire talent to develop social media. Companies employees are encouraged to use and spread the social media they create. Social media use increases. Company productivity decreases, force resource action.

  3. prabhakar_deosthali
    July 7, 2011

    Since the internet era , there has been a slew of products which are not the products in the traditional sense. In many of these products there is no hardware. It is just a few lines of code implementing an idea. Those lines of code create a whole new virtual world such as those social networking sites.

    Like the dotcom bubble such bubbles are also likely to burst.

    But so what?  There are so many real products that fail to capture the market and the companies launching them end up in millions worth of dead inventories.

    In the soft-products ( the so called Vapourware) at least there is no risk of locking millions in the dead inventories.

     

    I have this experience – The company I worked for launched an innovative TV that failed to get the required sales for the company. By the time the product was withdrwan from the market the company had acumulated dead stock of finished goods, components, assembly lines and test equipment that took years to salvage.

  4. Barbara Jorgensen
    July 7, 2011

    Thanks for your feedback readers! I have to modify my comment about lines of code–I recognize that's what many software companies do and there is clearly a lot of value in Microsoft's products. The problem with the first dotcom boom was the “me-too” companies with just a slight twist on a business model. In our market, it was component auction sites; information aggregators; commodity traders and hundreds of sourcing solutions. Here's what happened: we found buyers didn't really want to change their model as radically as many thought. It is only now the Internet has become a valid tool for electroncis purchasing, and even now it is being adopted very carefully and deliberately.

  5. Anand
    July 7, 2011

    I am really, really worried that the industry is approaching another bubble where novelty companies that don't make anything except lines of code are worth billions of dollars.

    Barbara,

      Although these companies don't make anything except lines of code, but they do have revenue model. Companies like LiknedIn generates its revenues from user subscrition. Companies like FB/Google generates its revenue from advertisments, so do u still think situation is alarming ?

     

  6. Nemos
    July 7, 2011

    “I am really, really worried that the industry is approaching another bubble where novelty companies that don't make anything except lines of code are worth billions of dollars

    I believe that bubbles can be born only from economic systems that they do not produce anything.  To produce lines of code you spent a lot of time,  even the lines of code it is not a tangible product it is a product that a lot of people have worked for it.

    I will reverse your question about where is Myspace? now and ask where is Microsoft now?

  7. itguyphil
    July 7, 2011

    I agree. The previous comment is pretty naive. We're in a society where everything is run by chips and software. I would hope that 'code-writers' would be juggernauts.

  8. Daniel
    July 8, 2011

    Without revenue earnings, how they can meet the expenses. In most of the startup companies, retaining employees for a long time is very difficult and in such cases, fresher’s or peoples with lesser experiences are the only solutions. In practical, most of the startup companies are run by experienced peoples with fresher.

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