Strategic CIO // Team Building & Staffing
Commentary
7/25/2014
09:06 AM
Doug Schade
Doug Schade
Commentary
Connect Directly
Twitter
RSS
E-Mail
50%
50%

Bubblemania: Will We Party Like It's 1999?

Feverish tech activity is exciting and in many ways similar to 15 years ago. We aren't at dot-bomb levels of hysteria, but there's one big problem that may threaten growth.

9 Job Hunt Tips For Older IT Pros
9 Job Hunt Tips For Older IT Pros
(Click image for larger view and slideshow.)

Venture capital funding is at its highest level since 1999. Tech IPOs, mergers, and acquisitions are on the rise. Bidding wars are breaking out for top talent. Could we be floating into another tech bubble?

No -- or, at least, not yet. I don't see the frenzied pace of funding, startups, and public offerings evident during the infamous dot-com bubble. But things are getting frothier, and one area does worry me.

First, let's look at what's different: In 1999, funding was given based on "eyeballs and ideas," with VCs throwing money at vapor. Investors learned their lesson and are now much more deliberate. Startups need more than just an idea; they need proof of profitability and a well-thought-out plan. There are other stark differences between now and then, too, many of them stemming from advances in technology. Open source and cloud have drastically changed the way tech companies do business, and that means launching a product can be vastly less expensive.

This evens the playing field, allowing more entrepreneurs to get ideas off the ground; that helps account for spikes in startup volume. These technologies also allow companies to be more nimble. They can deliver products over the Internet much quicker than before, and they can lease exactly as much cloud space as they need. Fixing glitches is more efficient too, as DevOps is baked in. Flash back to 15 years ago, when technology was expensive and cumbersome. It was arduous to change a product, because people often had to make site visits to implement updates.

[Do you have what it takes to be a true 21st century leader? See 3 Underappreciated IT Leadership Skills.]

Technology has changed the financing process, as well. In 1999, companies would receive $100 million in funding and blow through it in a year. Today, startups do more with less. Instead of investing $2 million, VCs can give $200,000. Heck, you can launch an idea on as little as $60,000 -- an amount that would have covered the cost of one circa-1999 server. Seeking seed funding has emerged as a precursor to VC investment. Once founders get their products to the beta stage, they can go to VC firms. In the past, entrepreneurs had to go straight to VCs, because startup costs were exponentially higher.

And those VC-backed incubators that folded at the collapse of the dot-com bubble? They're now making a comeback. Entrepreneurs with stellar ideas are once again getting the guidance of experts to develop more reliable, marketable products. Venture capitalists have a chance to get to know startup founders better, have a hand in how the company is put together, and make a more informed investment when the startup is ready.

Skype's Palo Alto offices sport more AstroTurf than Tropicana Field.
Skype's Palo Alto offices sport more AstroTurf than Tropicana Field.

In a nutshell, the tech space of 2014 is like the younger sibling of a wild and crazy adolescent. She watched her big bro get caught up in the dazzle and excitement of the time and make some poor choices. Little sister learned from those mistakes and is careful, practical, and deliberate.

Sure, many companies will still fail in the coming months. Unlike the past, however, when companies tanked because funding dried up or the technology didn't translate to a mass market, today's greatest threat is a dearth of talent. And that's my big worry -- what I see as the pin that could let the air out of today's growth cycle. There just aren't enough good, qualified developers in the United States to help organizations bring their ideas to fruition.

In 1999, companies were hiring any warm body to fill a seat. Today, though organizations feel the squeeze to hire quickly, it is not coming at the expense of properly vetting candidates. That's good news. And of course, some of the demand could be met from overseas. There is a lot of talent wanting to come stateside for work, but the H-1B visa process is still cumbersome. Facebook's Mark Zuckerberg is leading the charge for reform, encouraging the government to ease restrictions. But given the current political climate, I'm not holding my breath for results.

Another solution can be found in condensed developer training programs, which are popping up around the country. Places like Launch Academy and General Assembly offer 10-week courses to teach code to newbie developers. Graduates may have the skills to be strong junior candidates.

Organizations can also lure top talent with an engineer-friendly culture. In 1999, startup offices looked like frat houses, with Xboxes and foosball tables and bunks to crash at the end of a long day. Though games are still a draw, employees have had it with all-nighters. Today's developers don't want to spend 24/7 in the office. A more balanced approach to work can stave off burnout, and the ability to work remotely is attractive. Yahoo's retrenchment reminded developers that this isn't a gimme.

Other ways to attract developers: Foster a work culture that allows them to take advantage of open source technology. Let them share ideas with (and have their code seen by) peers around the world. Give them work time to tinker with their own projects and new technologies, like Google did with its "20% time."

Organizations that foster sharing and creativity by hosting meetups, encouraging collaboration, and supporting individual innovation will attract the best talent. Closed cultures just won't cut it. Even today's office space is open. Instead of boxy cubicles, desirable work environments are designed with common areas for brainstorming, because working together spurs creative thinking.

Hiring the right talent, funding the richest and most proven ideas, and learning from the mistakes of the past will ensure that the next bubble -- when it arrives, and it will -- doesn't burst.

In its ninth year, Interop New York (Sept. 29 to Oct. 3) is the premier event for the Northeast IT market. Strongly represented vertical industries include financial services, government, and education. Join more than 5,000 attendees to learn about IT leadership, cloud, collaboration, infrastructure, mobility, risk management and security, and SDN, as well as explore 125 exhibitors' offerings. Register with Discount Code MPIWK to save $200 off Total Access & Conference Passes.

Doug Schade is a Principal Consultant in the Software Technology Search practice of WinterWyman, one of the largest recruitment firms in the Northeast. Doug has deep relationships in the Boston-area VC, startup, and technology communities. Contact him at dschade@winterwyman.com. View Full Bio
Comment  | 
Print  | 
More Insights
Comments
Newest First  |  Oldest First  |  Threaded View
Hospice_Houngbo
50%
50%
Hospice_Houngbo,
User Rank: Strategist
7/30/2014 | 11:14:31 AM
Re: Game Industry
Worldwide video game market revenue is worth more than $100 Billion in 2014 and is expect to increase in the coming years. So the game industry is becoming even bigger than the movies and music industry.
Hospice_Houngbo
50%
50%
Hospice_Houngbo,
User Rank: Strategist
7/29/2014 | 10:34:49 PM
Re: Tech bubble - what's the one big worry?
@John80224

"And the fact there aren't enough visas is more due to misuse of the visa programs than any shortage in quantity."

At what level are the visa programs misused? At the recruiting companies level or at the government level?
stotheco
50%
50%
stotheco,
User Rank: Ninja
7/27/2014 | 1:51:21 PM
Re: sure looks like a bubble to me
The trend is definitely heading that way. The same goes for drones--I mean, I understand the fascination with drones, but I hardly think it's a practical way of going about deliveries. Does anyone have any predictions about when this bubble will pop?
stotheco
50%
50%
stotheco,
User Rank: Ninja
7/27/2014 | 1:46:20 PM
Re: Game Industry
I agree with you. Every time I see gaming-related news and there's mention of the budget, I'm just astounded at the numbers sometimes. As for game sales, sometimes the numbers leave much to be desired. Well, I suppose for a lot of games save for those from the really popular franchises.
Broadway0474
50%
50%
Broadway0474,
User Rank: Ninja
7/25/2014 | 10:57:33 PM
Re: Game Industry
@Whoopty, is gaming really that big a piece of the tech pie that a crash there could bring the rest of the cards down? 
Thomas Claburn
50%
50%
Thomas Claburn,
User Rank: Author
7/25/2014 | 6:44:06 PM
sure looks like a bubble to me
I'm seeing a lot of the same business models that I saw doing the turn of the millenium dot-com boom, like an explosion of food delivery and food prep services. And in place of WebVan, there are Amazon Fresh trucks and Google Shopping Express cars clogging the streets.
Whoopty
50%
50%
Whoopty,
User Rank: Ninja
7/25/2014 | 12:46:42 PM
Game Industry
The Games Industry is possibly looking at a crash soon, which could have a big impact on the tech industry as well. 

AAA game development costs are booming to ridiculous highs and the games aren't delivering. The last Tomb Raider reboot sold over four million copies and failed to break even. It's getting difficult to survive at the top end and the middle ground can't compete on marketing. 

The only sector that's doing well is indie, where the budgets are low enough that people can turn a profit, but even that area is hitting a problem: saturation. The low entry level is leading to too many developers making too many gamers. Suddenly being an indie is about marketing and there's very few people that can afford that. 
John80224
50%
50%
John80224,
User Rank: Apprentice
7/25/2014 | 12:32:01 PM
Re: Tech bubble - what's the one big worry?
I think it's supposed to be quantity of talent available, though I'm unclear on some of the points made around talent.  Startups would need someone with more than a 10-week crash course in a technology.  And the fact there aren't enough visas is more due to misuse of the visa programs than any shortage in quantity.
David F. Carr
50%
50%
David F. Carr,
User Rank: Author
7/25/2014 | 9:25:25 AM
Tech bubble - what's the one big worry?
I read this a couple of times and couldn't figure out what the "one thing that worries me" was. Seems like this is a lot of little worries, accompanied by mitigating factors. What am I missing?
2014 US Salary Survey: 10 Stats
2014 US Salary Survey: 10 Stats
InformationWeek surveyed 11,662 IT pros across 30 industries about their pay, benefits, job satisfaction, outsourcing, and more. Some of the results will surprise you.
Register for InformationWeek Newsletters
White Papers
Current Issue
InformationWeek Government Tech Digest Oct. 27, 2014
To meet obligations -- and avoid accusations of cover-up and incompetence -- federal agencies must get serious about digitizing records.
Video
Slideshows
Twitter Feed
InformationWeek Radio
Archived InformationWeek Radio
A roundup of the top stories and community news at InformationWeek.com.
Sponsored Live Streaming Video
Everything You've Been Told About Mobility Is Wrong
Attend this video symposium with Sean Wisdom, Global Director of Mobility Solutions, and learn about how you can harness powerful new products to mobilize your business potential.