I wouldn't say that 2007 was a bubble though, at least not in the tech world. Social media wasn't properly realized at the time so for example Facebook being valued at 15 billion or Linkedin at 1 billion made sense. There could have been ten similar sized competitors to both of them and the valuation would still have made sense since one of them would win.
That's what makes reading this piece 12 years later so interesting - there was definitely fear of a bubble in 2007 (probably partly due to the trauma of the 2000 dotcom bust) even though in retrospect there definitely wasn't. It's funny how it described Facebook's $15 billion valuation as a sign there might be a bubble, when FB now is valued at $525 billion.
We had this debate in 2007 on hacker news (I had a different account)..
Webvan today is Instacart. FB is very valuable. Hindsight is 20:20. I think companies stay private longer to ride out the market not being ready for them long term. But maybe Uber waited too long.
"Consider Facebook, the popular but financially unproven social network, which is reportedly being valued by investors at up to $15 billion. That is nearly half the value of Yahoo, a company with 38 times the number of employees and, based on estimates of Facebook’s income, 32 times the revenue."
I don't quite agree that this is actually what the issue is lately. I think there have been two types of bubbles in the general startup ecosystem over the past few years that are not related to whether early stage startups are profitable:
1) One has been the under-estimating of unit economics in companies that interact with the real world (unlike pure software companies), which caused a lot of 'Uber-for-X' startups to go under, not to mention Uber itself struggling to maintain its hoped-for valuation.
2) The second aspect has been the influx of late-stage money into companies like Uber and WeWork, delaying IPOs, which has definitely caused some irrational exuberance in the sector.
Check out Scott Galloway on Twitter (https://twitter.com/profgalloway) and his website (linked from his Twitter bio). He's been calling out Uber and We for awhile. He has also had some heated exchanges with SV VCs on Twitter.
In the case of We I think you are being too generous thinking the IPO is only delayed. The S1 pulled the covers back, and I'm not sure it will ever IPO and may end up out of business.
Uber is not in a much better position, as their financials only work by significantly raising prices and/or driverless self-driving coming to market. I think the later is much farther away than people assume.
I think some interesting takeaways from reading this article in 2019 are:
- One "black swan" doesn't happen twice. Though Taleb would disagree, i.e. he'd say that neither the dot-com bubble nor the 2008 crash were black swan events, but for most investors, entrepreneurs and traders they were. In any case, we are somehow immune to big random negative-impact events repeating themselves. We are not that stupid. The Bubble 2.0 didn't happen though something else, unrelated, did.
- The predictions of the time assumed that Internet was there forever. Very soon a dramatic landscape shift happened with the release of the iPhone. We are not living in a purely Internet era anymore, and all the surviving Internet megacorps have managed to embrace the shift (Google, even Facebook with its Messenger), and those who haven't are dead (Yahoo, and probably more to come).
- What we think will happen next is probably wrong. We can't even say whether there will be another technological shift or both the Internet and the mobile are here virtually forever. Something that has already failed can make a come back. In 2007 Taleb mocked e-scooters, for example, now look at their impressive comeback. He also thought in 2007 that Google will be replaced with something else just as quickly and abruptly as Google replaced Alta Vista. Bottom line: don't try to make arbitrary unsubstantiated assumptions even if your name is Nassim Nicholas Taleb. We suck at predictions.
- I think one key difference between entrepreneurs and investors is that the former don't try to make predictions much, while the latter depend on predictions. One corollary being that entrepreneurs should probably ignore the buzz or what the most funded tech is at any given point in time (something-dot-com, IoT, blockchain, AR, AI, ...) and just do their thing: bring their dreams into life regardless of what everyone else is saying.
You should check out Michael Lewis's podcast "Against the Rules".. it discusses basically what happens when the referee'd in life are rigged. In 2008 it was the bond rating agencies whose fictitious A+ approvals on subprime loans cause the collapse. In 2000 it was an influx of capital due to low interest rates and lowered capital gains (The Taxpayer Relief Act of 1997) that propped up companies with no revenues who pushed for IPOs. IPOs themselves were relatively underpriced (even though they were inherently worthless based on the fundamentals long term) which cause the pop phenomenon that I believe encouraged IPO investment to ride the wave. So in these cases where was the SEC? And what was the fiduciary duty of the underwriters? In all honestly today the tech IPO market kind of sucks because of all of this. It takes years and unicorn status to IPO which is a reversal and I think another problem.
Eh, I bet you know a lot more people who don’t sell due to capital gains taxes than people who buy because of them. The early 2000s collapse had a lot going on.
Not quite. One is Internet on your desk and the other is Internet in your pocket. It makes certain things possible that would previously make little sense. You would not tweet a video from a protest rally; you would not message or listen to podcasts or read something or do trading while commuting; online banking wouldn't be that safe and secure; you wouldn't have an interactive map in your palm while in a new city; and a thousand more things that today exist only on mobile - thanks to the compact touch interfaces and the Internet of course.
You could SMS and MMS from a protest, you could do banking with a phone call.
It's all progressive improvements. Networks converged to internet and TCP/IP while devices converged to computers everywhere with colored screens of various sizes.
Try to do what e.g. Revolut, N26 and similar apps are offering over the phone. It would take ages. This is a really bad comparison.
Sometimes progressive improvements become a breakthrough, though I wouldn't call the invention of touch UIs a progressive improvement. It was a massive one. We take it for granted today but before the release of the first iPhone very very few people would have imagined it, let alone that it could change the world (which it did).
Online banking was more secure on the desktop, IMO. Printed OTP and login/password versus the current PIN-only system my bank has inexplicably switched to for their mobile app.
All the banking apps I use provide biometrics login (opt-in), plus your mobile device is a lot more likely to be operated by you personally compared to your desktop computer. I.e. your phone in someone else's hands is an exception because it requires your permission and your biometrics, and it would be very temporary anyway. Not so with the desktop. Online banking was never as secure as it is now.
Let alone that mobile platforms being managed environments themselves are a lot more secure.
> The predictions of the time assumed that Internet was there forever. Very soon a dramatic landscape shift happened with the release of the iPhone. We are not living in a purely Internet era anymore, and all the surviving Internet megacorps have managed to embrace the shift (Google, even Facebook with its Messenger), and those who haven't are dead (Yahoo, and probably more to come).
Kindly, it seems you're a little confused about what the internet is.
I don't think I am confused, no. The Internet in your pocket with a touch UI is a different thing. I tried to argue about this in a neighbouring branch.
You’re mistaking the web for the internet. It doesn’t detract from your points but your insistence risks confusing others.
It’s still pure Internet. It’s just no longer pure “web.”
The internet‘s UI is your OS’s networking library. Although it has changed with the advent of mobile (e.g. can we transparently handle switching between WiFi / cellular?) it has no GUI, touch or otherwise.
What you are trying to say is that companies have had to adapt to the possibility that web applications in a web browser will lose out to native applications using web or Internet protocols behind the scenes.
I think the change (web vs. mobile) is more about the following: mobile devices are more personal and well, more mobile. As such, they provide stronger authentication mechanisms. They are typically managed environments, and finally, there are more people with mobile devices than with personal computers in the world. All of the above are truly game changers when you look at certain application domains such as mobile banking.
Here's one out of thousands of scenarios that are possible only on mobile: I am in London, I need some cash money but my bank accounts are in euros. The sequence is this: Face ID, then with a few taps I convert the necessary amount and withdraw pounds from the nearest ATM. With Revolut I saved a lot of time and money on conversion alone (though to be fair many other mobile banks do the same today).
This is not just "pure Internet" it's a different medium that brings a lot of new possibilities.
It's that I could do it while in front of the ATM when I needed it, and that there are no interchange fees. Revolut and a few others use the same average price for conversion both ways.
I think he meant www. Apps/phones are closed ecosystems that are in the middle between cable TV run by megacorps and the www of the early 00s with some tail of indy aps and remaining independent websites
It’s essential to point out that not all investors attempt to predict the future. There are many strategies and approaches that actually avoid such predictions.
Lehman Brothers imploding, the exposure to Lehman Brothers and untrustworthiness of the ratings agencies was a black swan event.
This caused everyone retracting their credit lines as they couldnt trust the whole system any longer, revealing how highly leveraged and dependent on credit lines that everyone was, raising margin requirements - causing liquidations - and completely closing some margin markets.
If that was in anybody’s model I would like to see that model.
Entrepreneurism is the art of making it happen regardless of circumstances. It’s more about constant adaptation and change than about predicting the right move in advance.
I did not see the connection, but I think private market investors did. They saw that if you could sell web ads (Google) or sell mobile ads (Facebook) at zero marginal cost to each additional advertiser, you'd have a company worth 10x revenue. Investors made that bet and for the most part have all been paid very well.
In my mind the web has always had ads although maybe for a brief period this wasn't true.
The real turnaround that happened around this time and I guess before is that the platforms started realising how valuable user data was and the relative value of "smart" data-driven advertising as compared to "dumb" content- based ads.
Now when I see that a platform has amassed x million users I'm very cynical about their motives for doing so.
I love these cherry picked legacy articles from 'the paper of record'.
So I will cherry pick what I think are the two best parts:
> Consider Facebook, the popular but financially unproven social network, which is reportedly being valued by investors at up to $15 billion. That is nearly half the value of Yahoo, a company with 38 times the number of employees and, based on estimates of Facebook’s income, 32 times the revenue.
Facebook has a market value now of $525 billion and obviously and $30 billion in EBITDA.
...and...
> Twitter, a company in San Francisco that lets users alert friends to what they are doing at any given moment over their mobile phones, recently raised an undisclosed amount of financing
In particular 'lets users alert friends to what they are doing'. I remember when twitter came out people were tweeting what they ate for lunch.
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[ 4.3 ms ] story [ 74.8 ms ] threadhttps://m.youtube.com/watch?v=I6IQ_FOCE6I
I think the right question is are we looking at a Google or a Webvan.
yes, I know Webvan may have been a “good idea”
Webvan today is Instacart. FB is very valuable. Hindsight is 20:20. I think companies stay private longer to ride out the market not being ready for them long term. But maybe Uber waited too long.
"Consider Facebook, the popular but financially unproven social network, which is reportedly being valued by investors at up to $15 billion. That is nearly half the value of Yahoo, a company with 38 times the number of employees and, based on estimates of Facebook’s income, 32 times the revenue."
I don't quite agree that this is actually what the issue is lately. I think there have been two types of bubbles in the general startup ecosystem over the past few years that are not related to whether early stage startups are profitable:
1) One has been the under-estimating of unit economics in companies that interact with the real world (unlike pure software companies), which caused a lot of 'Uber-for-X' startups to go under, not to mention Uber itself struggling to maintain its hoped-for valuation.
2) The second aspect has been the influx of late-stage money into companies like Uber and WeWork, delaying IPOs, which has definitely caused some irrational exuberance in the sector.
In the case of We I think you are being too generous thinking the IPO is only delayed. The S1 pulled the covers back, and I'm not sure it will ever IPO and may end up out of business.
Uber is not in a much better position, as their financials only work by significantly raising prices and/or driverless self-driving coming to market. I think the later is much farther away than people assume.
- One "black swan" doesn't happen twice. Though Taleb would disagree, i.e. he'd say that neither the dot-com bubble nor the 2008 crash were black swan events, but for most investors, entrepreneurs and traders they were. In any case, we are somehow immune to big random negative-impact events repeating themselves. We are not that stupid. The Bubble 2.0 didn't happen though something else, unrelated, did.
- The predictions of the time assumed that Internet was there forever. Very soon a dramatic landscape shift happened with the release of the iPhone. We are not living in a purely Internet era anymore, and all the surviving Internet megacorps have managed to embrace the shift (Google, even Facebook with its Messenger), and those who haven't are dead (Yahoo, and probably more to come).
- What we think will happen next is probably wrong. We can't even say whether there will be another technological shift or both the Internet and the mobile are here virtually forever. Something that has already failed can make a come back. In 2007 Taleb mocked e-scooters, for example, now look at their impressive comeback. He also thought in 2007 that Google will be replaced with something else just as quickly and abruptly as Google replaced Alta Vista. Bottom line: don't try to make arbitrary unsubstantiated assumptions even if your name is Nassim Nicholas Taleb. We suck at predictions.
- I think one key difference between entrepreneurs and investors is that the former don't try to make predictions much, while the latter depend on predictions. One corollary being that entrepreneurs should probably ignore the buzz or what the most funded tech is at any given point in time (something-dot-com, IoT, blockchain, AR, AI, ...) and just do their thing: bring their dreams into life regardless of what everyone else is saying.
So... the internet on a big screen and the internet on a small screen?
It's all progressive improvements. Networks converged to internet and TCP/IP while devices converged to computers everywhere with colored screens of various sizes.
Try to do what e.g. Revolut, N26 and similar apps are offering over the phone. It would take ages. This is a really bad comparison.
Sometimes progressive improvements become a breakthrough, though I wouldn't call the invention of touch UIs a progressive improvement. It was a massive one. We take it for granted today but before the release of the first iPhone very very few people would have imagined it, let alone that it could change the world (which it did).
Let alone that mobile platforms being managed environments themselves are a lot more secure.
The user experience limited by the browser vs the user experience (less) limited by native platform APIs.
Kindly, it seems you're a little confused about what the internet is.
It’s still pure Internet. It’s just no longer pure “web.”
The internet‘s UI is your OS’s networking library. Although it has changed with the advent of mobile (e.g. can we transparently handle switching between WiFi / cellular?) it has no GUI, touch or otherwise.
What you are trying to say is that companies have had to adapt to the possibility that web applications in a web browser will lose out to native applications using web or Internet protocols behind the scenes.
Here's one out of thousands of scenarios that are possible only on mobile: I am in London, I need some cash money but my bank accounts are in euros. The sequence is this: Face ID, then with a few taps I convert the necessary amount and withdraw pounds from the nearest ATM. With Revolut I saved a lot of time and money on conversion alone (though to be fair many other mobile banks do the same today).
This is not just "pure Internet" it's a different medium that brings a lot of new possibilities.
While I did pay an interchange fee I could do this with my USD account numerous times in the past 20 years.
So is it just that you avoided slightly higher interchange fees?
> The predictions of the time assumed that Internet was there forever.
...seems to indicate you feel the internet has somehow gone somewhere.
This caused everyone retracting their credit lines as they couldnt trust the whole system any longer, revealing how highly leveraged and dependent on credit lines that everyone was, raising margin requirements - causing liquidations - and completely closing some margin markets.
If that was in anybody’s model I would like to see that model.
The real turnaround that happened around this time and I guess before is that the platforms started realising how valuable user data was and the relative value of "smart" data-driven advertising as compared to "dumb" content- based ads.
Now when I see that a platform has amassed x million users I'm very cynical about their motives for doing so.
So I will cherry pick what I think are the two best parts:
> Consider Facebook, the popular but financially unproven social network, which is reportedly being valued by investors at up to $15 billion. That is nearly half the value of Yahoo, a company with 38 times the number of employees and, based on estimates of Facebook’s income, 32 times the revenue.
Facebook has a market value now of $525 billion and obviously and $30 billion in EBITDA.
...and...
> Twitter, a company in San Francisco that lets users alert friends to what they are doing at any given moment over their mobile phones, recently raised an undisclosed amount of financing
In particular 'lets users alert friends to what they are doing'. I remember when twitter came out people were tweeting what they ate for lunch.