What happens to (tech) bubbles?

  • 2016/06/02 17:57
  • Mike

Question: What happens to bubbles? Answer: They always burst.

No matter how high or how far they travel, bubbles will always burst. Will the tech bubble burst, or are we just living in an all-encompassing digital age?

The companies attracting the most (media) attention in recent years all seem to have the same core principle - sharing. Whether it's sharing cars (Uber) or sharing homes (AirBNB) or sharing everything and anything (all social media full stop), every man and his dog are clamouring to invest. What happens when you see a few people standing pointing at the sky? You (almost subconsciously) look up and start pointing too. It's FOMO, the fear of missing out. Where the tech bubble is concerned, it's fear of missing out on that next (let's reach for the stars) $100 billion-plus in value company, that next super-unicorn.

However, we already know that teens have been leaving Facebook in their droves for the ghostly Snapchat or the glorious Instagram. Who can blame them? When was it ever cool to hang out with your parents? But (more importantly and more worrying) what happens when the rest of us decide to stop sharing? We already have many a bride and groom making a stance in not allowing any part of their wedding to be posted on Facebook. Who cares if Facebook is looking to move from video into a future of virtual reality? What is Facebook without sharing? Lots of adverts, but with no one to advertise to. Given the fact that the vast majority of Facebook's current profits are from advertising (over 96%), any such trend could prove catastrophic.

Another fear, FOLE (the fear of losing everything), is always there, lurking in the darkness. We all remember the dotcom bubble; anyone who put a dotcom at the end of their (business) name ended up being showered in money. But the party was short-lived. Lastminute.com has survived, but everyone remembers their share price peaking at 511p before crashing to 80p just a month later.

The difference, this time, is where the money is coming from. It's now the venture capitalist (VC) firms who are taking all the risks (and reaping all the rewards). It doesn't matter whether a company is in negative equity, the VC firms are simply betting on red or on black. Yes, a VC may lose, but they could just as easily win (and win big). The VC firms will carry on life as normal, whether or not the tech bubble bursts. Those who will suffer (and those who are already feeling the pain) are those on the ground: those that have already been priced out of San Francisco's housing market, those taxi drivers losing their livelihoods because of Uber (just like those booksellers tortured by the might of Amazon many moons ago).

Even more significantly is the fact that the super-unicorns have already diversified. (Microsoft, Apple, Amazon and Google aren't technically super-unicorns because they all started prior to 2003, but we'll include them anyhow). Facebook has already acquired the WhatsApp messaging service and Instagram (which made Kylie Jenner just as big as her most famous sister, Kim Kardashian), is looking at virtual reality (VR) with its Oculus Rift purchase, and also dipping its toes in the artificial intelligence (AI) waters. Google's portfolio includes robotics, VR, their own AI personal assistant GoogleNow, smartwatches and other wearables, android, the chrome browser and operating system (OS), the Internet of Things (IoT) where your fridge knows when you've run out of milk and orders another pint (just like Amazon's Dash buttons), and autonomous cars (as allegedly is Apple). Apple also has its own AI personal assistant Siri. Microsoft has reinvented itself with its numerous services and subscriptions, is embracing open-source software, and (please) take a look at Microsoft's AI personal assistant Cortana; she is almost lifelike. When you start referring to something as "she", you know you are onto a winner. And, last but not least, Microsoft (Azure), Amazon (AWS), and Google (Cloud) all have cloud computing platforms, shaping the way in which we all operate. Watch this space!

Question: What happens to tech bubbles? Answer: It doesn't actually matter whether it's a bubble or not, it's whether you can get in (and get out) quick enough. Whether it's the fear of missing out or the fear of losing everything, the fear factor is massive, and it's only just started...

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