There’s plenty of reason to think that Silicon Valley is building to yet another bubble or, as they say, partying like it’s 1999. Companies these days are raising some rather staggering sums of money – there are about 100 who are already valued at $1 billion or more, now known as “unicorns.” Some of these are dubious at best, notes Nick Bilton in Vanity Fair, like apps that alert you about a parking space or let you know that friends are nearby. Many such app development teams are minting millions or tens of millions creating “instantly rich young people” who now spend their money on fancy cars, or upping the price of Silicon Valley real estate.
While it may appear “euphoric” from the outside, as a recent article in the Tech section of The Week has noted, some of these valuations look pretty murky, even inflated and, it notes, at times “fabricated.”
Doug Hegwood, in an article from The Nation calls it “surreal.” Airbnb, which doesn’t own any of its properties – or much of anything actually – is valued at $24 billion. That’s more than Marriott which operates more than 4,000 hotels.
As The Week points out however, unlike last time around, this ‘bubble’ isn’t dominated by the ‘ordinary folks’ who lost over $6 trillion in the post Y2K meltdown in risky Wall Street IPOs and the market’s tech crash. This time around, the money comes mostly from wealthy venture capitalists, of whom there seems to be a growing number of late.
According to Michael Johnston of MarketWatch.com “Today’s environment can’t come close to matching that of 1999.” Back then, pets.com for one, went bust in a year. Microsoft was valued at a whopping $600 billion, almost double today’s valuation, with a fraction of the revenue. On the positive side today, at least many of the current tech favorites have actual products and revenue, and not just a cool domain name (again, see pets.com).
Perhaps the silver lining to this party is that the boom-and-bust cycle underlying it actually drives innovation, according to an article in the Financial Times. For example, all that spending on the buildout of broadband in the last tech bubble laid the foundations for the Web 2.0 that followed.
Some of the most interesting conclusions on all this have been drawn by Dave Pell in Medium.com. Mr. Pell notes that “We’re definitely in a bubble, but it’s not a financial one – it’s psychological.” He notes that today’s techies sometimes appear to believe that “just because they wrote an algorithm that gets us to the airport faster, they’re experts on every other topic.” They forget “the role timing and serendipity play” in building their fortunes.
As The Week concludes in its Sept. 18th article: “Here’s something to keep in mind: Showing up at a gold rush with a shovel and a pan doesn’t make you a genius.”