Markets in technology and mobile should see growth
Published 20/04/2014 | 02:30
Is this another big tech bubble?
People are worried that we may be entering another tech bubble similar to the one that stung so many at the end of the nineties. Companies like Facebook paying $18 billion (€13bn) for Whatsapp and hundreds of companies getting huge rounds of funding is bringing memories of the previous crash flooding back. So are we living in a bubble that is about to explode again, stinging investors?
The answer is complicated. At the top end of the market companies like Apple, Google and Facebook are making huge amounts of money. Google announced a "bad" quarter this week which showed $15bn (€10.8bn) in revenue. Apple made close to $10bn (€7.2bn) in profit in their most recent quarter. I'll repeat that in case it didn't sink in ... profit. The big tech companies now have so much money that they can afford to snap up competitors left right and centre. Billions are the new millions and as Google's $3bn (€2.17bn) acquisition of Nest shows, it doesn't even have to be core to their current offerings and can just be about a longer strategic play.
These acquisitions are giving investors a huge return on their investments but it is large VCs (venture capital funds) who are really winning here. With huge exits what we are seeing is more amateur investors piling into stocks like Facebook, LinkedIn and Twitter hoping to make similar returns and that is where people could get stung. The spectacular growth for those companies is long gone and they could all be disrupted by new technologies like Whatsapp (hence the large price tag and Facebook taking them out).
In the middle of the market there is disruption happening. Companies like Airbnb, Hailo and Spotify are changing entire industries. The disruption is possible because of the emergence of smartphones, super fast connections and mass adoption. Most of us now walk around with a super computer in our pockets which wasn't the case just 3-4 years ago. With less than a third of the world's population online, the room for growth is huge.
At the bottom end of the market there is a ton of money washing around. A start-up today can find €50,000 in funding in Ireland pretty easily. There are dozens of incubators around the country and plenty of seed funding. The simple reality of start-ups though means that although they all start with the goal of "being the next Google", the harsh reality is that most will fail. For every whatsapp there are hundreds of other failed attempts – investors and entrepreneurs will continue to lose money in this space.
What is different today than back in the dot com boom is that there is lots of revenue flowing through online businesses. Hailo are taking 12 per cent from every journey in their cars in this city. Airbnb are sucking money out of hotels and into their own coffers.
While many early tech companies focused on advertising as an unlikely business model, we are now seeing companies launching and generating huge revenues from day one.
Consumers are a lot more comfortable spending money online now than they were a decade ago and that trend will only speed up as our phone becomes our wallet over the next few years.
Having said all of the above, you do get the feeling that the market is slightly exuberant at the moment. Valuations are a little high, but rather than a full-on crash, there might just be a little reality injected back into the market.
I wouldn't be selling my house and putting all the money into Facebook stock just yet, but I would be very excited about the tech space and mobile in particular, because far from a crash there, we are only really seeing the tip of the iceberg in terms of future growth and disruptive technologies.
Niall Harbison is Co-CEO of PR Slides
Sunday Indo Business