Tech Fail Forecast: Bursting The Next Bubble
Fifteen years after the dot-com bubble burst, industry pundits are calling out similar signs of froth in the current tech boom. Here are nine tech ideas, products, excesses, and business models that we expect to look back on in 15 years and ask: "What were we thinking?"
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When we look for a symbol of the 2000 tech bubble, many of us recall E*TRADE's Super Bowl 2000 commercial, which starred a dancing chimp. The ad wrapped with these notorious words: "Well, we just wasted 2 million bucks."
E*TRADE would probably like to have that small fortune back. Its own stock traded at nearly $600 a share in 2000. Fifteen years later, it trades at about $30.
That's the way bubbles go. Money ignores history and forgets the law of gravity. It grows anxious looking for the next Amazon.com.
A lot of very smart people today say that current tech valuations are mostly air, and they expect to hear a bubble burst shortly.
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On the plus side, a 2016 tech bust would not result in anything like the nuclear winter that followed the 2000 bubble. Back then, the hysteria involved nothing less than the Internet itself. Everyone from pension-fund managers to Iowa investment clubs piled into the market. Few emerged unscathed.
The most egregious hype today is limited to businesses based in social media, the sharing economy, and the cloud.
Unicorns -- technology startups valued at $1 billion or more -- numbered 145 in November 2015, and, as online publisher Investopia noted, "they can't all be the next Google."
The list of unicorns includes Dropbox, Cloudera, Pure Storage, Uber, Airbnb, Snapchat, Pinterest, and Zenefits.
Investors in unicorns include Google Ventures (Cloudera, Uber), salesforce.com (Dropbox), Intel Capital (MongoDB), Andreessen Horowitz (Airbnb, Pinterest), and Greylock Partners (Cloudera, Dropbox).
For evidence of froth, look no further than the insane real estate bidding wars in San Francisco, driven by startup owners, investors, and employees (including interns reportedly earning $7,000 a month). For instance, this spring, a two-story San Francisco shack, built (and apparently last updated) in 1907, was listed at $799,000 and ultimately sold for $1.2 million. But, such has been San Francisco's real estate story since the Gold Rush.
Far more emblematic of this boom is the term "unicorn" itself. VCs, analysts, and reporters throw it around as if the word described something first observed by renowned economist Maynard Keyes. Further evidence of excess can be found in the $10 million wedding of a Facebook billionaire, which was illegally held in a California grove of redwoods (more on that, later).
Read on for examples of things that (maybe) make sense today. When we look back in 15 years' time, how many of these will cause us to pause and say, "What were we thinking?" Once you've reviewed these nine headscratchers, tell us what you think in the comments section below.
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This fanciful term always sounded odd coming out of a hyper-competitive and profit-driven industry like venture capital. The VC industry's pejorative nickname is "vulture capitalism" for a reason. And a lot of investors are likely to find that their own unicorn was all too imaginary. For the record: The word "unicorn" in this context was coined by Aileen Lee, founder of the VC firm Cowboy Ventures, in a November 2013 blog post on TechCrunch. Back then, Lee counted only 39 such creatures.
Oh, the drudgery of having to put profit on par with growth. As in 2000 (though to a lesser extent), the clear priority is growth. You'd think we would have learned this lesson by now.
"If you're losing money on each shoe-of-the-month-club subscriber you sign up, what good does scale really do for you?" asked Eric M. Jackson, CEO of cloud-based business-transaction services firm Caplinked in an interview. That would have been a good question to ponder at eToys, one of the biggest dot-com flameouts. It won with eyes and perished on sales.
Joan Wrabetz, serial entrepreneur and a former venture-capital firm partner, said online food-takeout startups are making a resurgence. The 2000 tech bust flattened the first wave of Internet-centered deliverers. Now, startup Delivery Hero is valued at $3.1 billion. "Hasn't pizza delivery been around for years?" Wrabetz wondered.
Random capitalization, mashed-together nouns, and rampant verbing apparently are not sufficiently eye-catching nowadays, said Marc Prosser, co-founder and managing partner of Marc Waring Ventures. Most of those suddenly gauche confections were odd, but at least they advertised what a company produced. "The worst culprits start with the word "zen," said Prosser. "A quick search turns up Zendesk, Zenefits, Zenprize, ZenWatch, and ZenCash."
Big Data has become an altar before which too many CIOs reflexively genuflect. In the near future, IT leaders will wonder how we could have had such a one-dimensional view of data analysis. "If you drive your business specifically by what you are most able to measure from your largest and most heterogeneous datasets, your business will be more about the cleverness of your data scientists than your customers' least understood aspirations," said IT consultant Lenny Liebmann. People are "pushing a view of analytics that make it the be-all and end-all of empirical understanding, and the supreme basis on decision-making. It most certainly is neither."
People without coding experience see enrolling in a quick programming bootcamp as one way to get hired by a promising startup. They want a taste of the out-sized rewards that employees at successful startups often get. Inevitably, some of these people will find themselves at the wrong startup when the bubble bursts. "Right now, there is a real gold rush mentality [saying] that I can leave my job, quickly get some technical skills, and then get paid a high salary at a startup," said Sid Savara, technical product manager at the University of Hawaii at Manoa.
You could almost stop this entry at the headline. But the full craziness of Facebook's artery-bursting purchase of Instagram, a photo-sharing startup, bears repeating. Instagram, with 13 employees and zero revenue, was all of 18 months old in 2012 when Facebook paid for it with $300 million in cash and $700 million in stock. That's about what Porsche plans to spend on a real factory with real employees to build real electric cars for real, paying customers.
For $60.39, you can pre-order this gin liqueur, which has been "delightfully dusted with sparkling 100% edible real silver pieces," according to distiller Firebox. The ad copy goes on: "Mark an ode to this majestic beast by drinking its tears." Be still and you'll hear monied risk-takers around the world shouting, "Bully!"
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