Nov 13, 2010
Right after first dot com crash there was a front page story on San Jose Mercury News making a subtle joke that the real economic recovery will be in 2011. I couldn’t dig out that article from Google but I remember reading it. Article was vaguely suggesting long road ahead and we all better saddle up for a long ride. That was 2002. Different era on internet time scale.
When I read Fred Wilson’s good post cautioning investors to calm down, I realized how globalization and internet have forever changed the acceleration of economic cycles in technology driven markets. We had second crash just two years ago, heck Fed is still busy with quant easing. So what has changed that we are back to irrational breathlessness?
Couple of new economic factors are here. Along with pre-IPO exit possibilities, we are guaranteed of localized bubbles every few years. Happening at much shorter time interval. Three factors I can think of –
SOMOLO (Social + Mobile + Local) is a disruptive force - new dot com. Combination of social, local and mobile is definitely going to prove painful for lot of incumbents. Stakes are very high. Many existing industries – video game consoles, arcade machines, medical instrumentation, electronics, aftermarket automotive, list goes on and on. All these sectors which thrived on disconnected innovations are fair game for disruption. With that many sectors forced to tweak their product portfolio, premium for new technology platform is going to shoot up like anything. Google paying $3 million retention bonus to keep star engineer is a chump change. This is no dot com battle, we are not in validation phase. This is a scale and velocity battle.
Globalization – All about distribution and quest for billion users. With new stress on mobile computing, the way we count user-base is undergoing a big shift. Not long ago Yahoo was one of the biggest site with more than half a billion users. Facebook crossed that milestone in less time. Facebook and Twitter are both aiming for user-base in excess of billions. Maybe Youtube will reach there one day too. Implications of billion users on one platform is staggering. Think about it, even a modest success on these platforms can be a reasonable outcome for investors. Just look at the leverage Facebook is enjoying.
Emerging markets have already emerged. In pure economic terms this is a big story, probably as big as first dot com itself. It changes global pricing for talent. Rock star talents are no more priced in their local economy. Facebook offering starting salary of $85k to a fresh BITS Pilani engineer proves that point.
Today’s edition of Mint newspaper has this interesting take on rising number of IPOs in Indian stock market. Stack of prospectus can rival Mt Everest height. India’s story is real but lot of this froth is driven by dollar carry trade, which is facilitated by Fed’s decision to keep interest rate to near zero.
Story will get repeated again and again. We can all get nervous about it but breathless money will continue to follow smart money causing localized bubbles. As a founder of bootstrapped start-up I am bit nervous as it muddies the water around real value-addition and makes our hiring effort major pain in the neck. But hey we can always enjoy a sequel. It’s going to be shorter than the previous one that’s for sure.