independent

Friday 18 April 2014

Talk of a tech bubble being blown way out of proportion

Evan Spiegel of Snapchat: The company turned down a €2.3bn bid from Facebook

Another year, another bout of 'tech bubble' hysteria. "Beware the tech bubble," advised a leader in The Wall Street Journal last week. "Will 2014 be the year the tech bubble bursts?" added Wired magazine.

"America's inability to be grounded and rational on value of things and stuff is on full display," warned media owner Matt Drudge.

Is there anything more attractive to tech news narratives than the idea of a bubble? Loss-making Twitter (€25bn) and revenue-less Snapchat (€3bn) have recently re-energised the theme.

Some have even tried the narrative out on Mark Little's €18m Storyful sale in December.

But is there really a tech bubble?

It is true that there have never been as many tech startups valued (according to their funding metrics) at over $1bn.

In fact, there are now at least 25 of these, including outfits such as Snapchat, Evernote, Dropbox, Airbnb and MongoDB (many of which now have bases in Dublin).

So, when one considers that there have only been 45 tech startups sold or floated for over $1bn in the last 10 years, eyebrows might start to rise.

What's more, most of these billion-dollar candidates are consumer services, not the business tech outfits (like Oracle, Microsoft or SAP) that usually make big money.

So investors may possibly be confusing profitable tech prospects (latter day Amazons and PayPals) with useful, cool tech firms (like Twitter and Snapchat) that may not have such good profitable prospects.

On the other hand, firms like the photo-messaging service Snapchat, which has lots of teenage users but almost no revenue and recently turned down at least one €2.3bn cash bid from Facebook, may have more to them than accountants calculate.

Contrary to popular belief, people stay loyal to tech services for some time once they use them regularly. Millions of us still use Yahoo Mail. Even more still use Internet Explorer. So when Snapchat starts being the daily communications tool of over 50 million people -- including at least 255,000 people in Ireland (according to Ipsos MRBI) -- there is probably a business model to be had.

It's arguably a similar story for services such as Pinterest, a low revenue social media site used largely for recipes and wedding preparation clippings, which is valued at €3bn by its funders.

I'm not saying that Pinterest is a good investment. But when compared with a block of apartments in Blanchardstown -- which some Irish 'property recovery' economists would have you invest in -- it may not be as objectionable a punt as some would have you believe.

Furthermore, comparisons with the infamous dot com crash of 2000 are way off.

In 1999, for example, there were more than 350 tech IPOs. Last year, there were fewer than 50.

In 1999, 80pc of dot com flotations had revenue of less than $50m. Last year, 80pc had revenues over $50m.

In other words, investors are not funding firms whose sole pitch is a vague idea and a dot com domain. (I was there for the great dot com bubble, when Irish companies got funded simply for saying they planned to introduce a website.)

The dot com tech bubble did a lot of damage to economies and large, institutional investment funds, even though many solid firms -- Google, Amazon, eBay and others -- came out of it. Talk of a tech bubble now is just not in the same neighbourhood.

Irish Independent

Also in this Section

Classifieds

CarsIreland

Independent Shopping.ie

Meet, chat and connect with
singles in your area

Independent Shopping.ie

Meet Singles Now

Findajob

Apps

Now available on

Top Stories

Most Read

Independent Gallery

Your photos

Send us your weather photos promo

Celebrity News