April 20, 2007
The dot-com bubble was a watershed event for software developers. You simply couldn't work in the field without having something miraculous or catastrophic happen to you. Or both at once.
The "dot-com bubble" was a speculative bubble covering roughly 1995Ã¢â‚¬â€œ2001 during which stock markets in Western nations saw their value increase rapidly from growth in the new Internet sector and related fields. The period was marked by the founding (and in many cases, spectacular failure) of a group of new Internet-based companies commonly referred to as dot-coms. A combination of rapidly increasing stock prices, individual speculation in stocks, and widely available venture capital created an exuberant environment in which many of these businesses dismissed standard business models, focusing on increasing market share at the expense of the bottom line. The bursting of the dot-com bubble marked the beginning of a relatively mild yet rather lengthy early 2000s recession in the developed world.
Like many others, I saw warning signs all over the place in late 2000:
- Skyrocketing salaries resulted in a rash of neophytes entering the software development field with giant dollar signs in their eyes.
- Internet companies with irrational, unsustainible business strategies built to cash in and hiring at a frenetic pace.
- You were never more than two degrees of separation away from a tale of some programmer who became an overnight millionaire.
Despite all the warning signs, it never occurred to me that I was working in a bubble. Until it popped. I don't want to make that mistake again. The three years after the bubble burst were dark, dark times for software developers. Everyone had to scramble to find a place to weather the worst of the storm. And the backlash was severe: rampant offshoring, devaluation of the IT industry as a whole, and diminished salaries and opportunies for everyone.
Seven years later, we're now clearly in the throes of another dot-com bubble. You might argue that the new bubble has been in effect since mid-2006, but the signs are absolutely unmistakable now. The job market for software developers is every bit as hyper-competitive as it was in 1999. The idea that you can found a company on the internet-- and make money-- is taken seriously now. There's a new one every week.
We've had seven long years to think about what the dot-com bubble meant, and where things went wrong. Here's what I think the original bubble got wrong, and what's different in today's bubble:
- Most people have an always-on broadband connection to the internet. Broadband penetration was a mere 5 percent in 2000; as of early 2007 it's now over 50 percent. So many dot-com business models were predicated on the mass market of dialup users, conveniently forgetting how brutally painful it was to use the internet on a modem.
- The emergence of viable ad networks. Few dot-com companies had revenue models that made any sense. Now there are dozens of potential advertising networks that you can plop on a web page to guarantee income proportionate to the pageviews. This advertising-supported model pioneered on the web is even trickling over into desktop applications.
- Moore's law and open source. An internet startup can now scale to thousands of concurrent users on a few cheap, commodity server boxes, running proven open-source solutions like Linux and MySQL. All of this was possible in 2000, but the "whitebox" software and hardware was unproven, and tended to be far behind the expensive, proprietary solutions. Now it's assumed, mature, a known quantity-- and the cost for that hardware and software is precipitously close to $0.
But the original bubble wasn't all greed and stupidity-- I recommend reading through Paul Graham's What the Bubble Got Right for the upside.
This new bubble does appear to be a bit more sane than the last one, at least initially. The greasy odor of get-rich-quick isn't quite as overpowering as it was in 1999. So far, people seem more interested in building sustainible, useful businesses than rapid market capitalizations.
Bubbles are exciting times. Fortunes are made and lost; careers built and destroyed. It's great while it lasts. So here's my question to you: what will you do differently in this bubble?
Posted by Jeff Atwood
This time I am going to make the millions with my unbranded (but amusing) Super Bowl commercial!
That will be the sign of the beginning of the end once again. Cat herders and the likes will once again bring about our demise.
Chris B. Behrens:
You are correct, we no longer have VCs handing out million dollar checks to 19 year olds. Now we have 22 year olds turning DOWN a billion (with a B) dollars.
A decade ago, very few people had a clear idea of what the Internet was about. Investors got excited about vague terms like "e-commerce" and "the information superhighway". They were bound to do something stupid.
These days, we have a whole generation who grew up with the thing. Several businesses have grown dependant on http, imap, smtp and a few other acronyms. Every professional in every field can refer to some expert who has studied the dynamics of the Web though a particular lense; during that time techies have been freely experimenting with an overwhelming amount of ideas which are rewriting the fabric of social space itself. Most of the pieces are now on the checkboard. The next move belongs to those who know how to move them to their advantages.
Granted, stupidity is timeless. So, I can only guess the bubble will hang around the same place it's always been. It will continue to flirt with those don't see the checkboard: investors who don't care what kind of services they're building, companies who won't learn how to manage nerds, geeks who think they're solving technical problems, people who go "wow!" too easily, and so on...
What are we to make of that big sense of woweness we're facing around the big 2.0? -- or has it been renamed to 3.0? Should we wait until Web 3.5++ Advanced before buying in?
I live in Montreal, though, so wether you call it Web 1.0, Web 2.0 or veggie sausages, it's business as usual. I don't expect any venture capital coming my way, nor do I see incredible salary raise on the horizon. I just think we're changing the way we develop software and live through with it. And I don't see anyone taking any notice of it. Not around where I devolve, anyway. Are we more sane or simply oblivious to some kinds of imagination?
This time, if something was to change, I wouldn't wait for somebody else. I'd ride the waves that look nice to me.
Double, double toil and trouble; Fire burn, and caldron bubble
I completely agree with David P. and disagree with the author.
This is not a bubble. Most of us learned our lessons in the bubble and those who didn't just don't learn very well.
The Internet and all that went with it at the time were completely new to everyone, every business and every country on the planet. Now however, these technologies have become a permanent and central part of the daily lives of most people, in some way or form.
On a personal note, I do know how bad the storm was. It left me literally homeless for about six months, living in a tent in the desert and then in an unrelated job after. It completely wiped me out.
So yeah, this time I'm far more careful. A group of very talented designers, developers and experienced business people and I are starting a new company but we are devoting a majority of our time to developing a solid business model and revenue plan. I think this is the significant difference among many emerging Internet-based companies now - that and the exciting evolution of the Net itself.
I was a bit too young for the first bubble. It will be interesting to watch this one.
- build software that businesses or people can use rather than grabbing for a job, but if ur in a bind and must have a job, then make sure that you have enough to land on when you must bail, having said that the nature of IT will be bubbly cos a lot of wrong notions about how to get rich via IT exist, people think its like real estate - buy it, polish it, sell it to a rock-star, wait till rock-star does something un earthly and gets busted and puts mansion up for auction, buy it again for dirt and sell it for even more as a " cultural icon " - that wont work in IT - cos this is about how smart you are (and hard-working and lucky too, sure) not how deranged and loud you can be - all the deranged and loud ones are the ones they had to wipe off the walls later - amazon started up BEFORE the "first bubble " kept going through that, started to show profits after like 7 years later and look where they are now - its not tough to manage a company moving at the speed of light if you have ur feet on the ground,
the reason indian IT suppliers are so " successful " (the ones that are) are cos for every one bad programmer they have a good one or a good team leader AND they have this policy of " benching " people to avoid burnout, to let them experiment on company time and money - lets face it ABN Amro or Airbus arent going to hire ou to write their systems ONLY cos ur 50 % cheaper --
imho the way to avoid going bust is simple - build B2B services for successful players in growing markets, that way you endear yourself to them as a growth and profit tool too -- but if you MUST build stuff for the B2C marketplace, especially services that are innovative,
make sure you have an income stream to pay the bills and live decently until your ships come home, if you did ur homework right they HAVE to be laden with gold.
Hmmm. You are so right but this bubble smells awful. Because of J2EE ruby, ASP and all this stuff. They look like incomplete pieces of a future technology that was abandonded (in the future).
I entered at the worst time: The burst happened right as I stepped into the "professional" web industry - kinda like a landmine. Signed contracts - got "fired" before my first day (long story) - company merged with itself (even longer story) - was absorbed by another - which was absorbed - which eventually disappeared. Kinda reminds me of what happened to Firstar bank. Went on 6 year break from anything resembling "professional" web design/development.
This time around -
Freelance, freelance, freelance (and full-time second job).
I select the clients/studios/projects I want to work with. I select my standards. I select my co-workers. I select my vacations. Basically, I still got a lot of trust issues left over from 2001.
what will you do differently in this bubble?
Staying right the hell out of it! :)
I was in a start-up that started in '98 that lasted past the initial crash and into late 2003. I stayed in it because the job market dried up and was using the time to retool myself in the .Net stack. Of course, the company collapsed and I was seriously burned financially. Now I'm working for an investment bank, and it's very challenging (in a good way).
I was too young for the first bubble too, but think that this one will be much bigger.
When life gives you bubbles - take a bubble bath? I say join the ride.
I was there for the whole bloody mess. I saw the consulting firm I worked for (a dot-com itself) hire hundreds of new developers in a single of year and make them work 80 and 120 hours a week to develop craptacular software with poorly specified requirements under impossible timelines.
But damn, those salaries were good, and the company had one hell of a reputation for delivering product.
Unfortunately the turnover right was sky high. And it was because the company--like many other dot-coms of the time--treated its staff like an expendable commodity that they could burn out and replace cheaply because the market was flooded and venture capital was readily available.
They nearly drove me from the industry.
I have NO desire to go through that again. It's criminal what those greedy sambatchees did to those kids. I can't tell you how many kids that went to school eager to be developers in those days NEVER WANT TO LOOK AT A PC AGAIN. Rapid developer burnout.
Money won't be the deciding factor in what jobs I take; quality of the workplace and competence of the management will be. (And that ain't no lie: I've turned down big money before because it's not worth the stress and nightmares that go with it.)
Started in a tech company pre-Bubble. Since we weren't *precisely* a web-based startup, we didn't have a problem when the bubble burst. Nearly 11 years later, we're the #1 provider of our sort of technology in the world, we were bought out by a Fortune 400 company and are still doing well.
The difference between us and the lot of failures? We had a good business model, and we were in (and are still in) a niche that provides a genuinely useful service to our customers, and our customer's customers. (That's right--we have an intervening layer between ourselves and the actual end-user.)
That being said, there's always an element of luck that goes alongside the hours and hours of work, the panic sweats, and the occasional sleeping under the table. It was never a given that what we do would be accepted by the public (as the tech had always failed to capture the public's interest and imagination before), but we prevailed.
I think it helped to have an actual product beyond a mere web presence.
It amazes me how people (see one of your previous posters) still think that technology is a relavent factor in the internet economy. It is not!
and on a completely different point...
One of the reasons that the first bubble had such a hugh collapse was that people with the money thought the techies had the right idea and the techies thought the people with the money wouldn't invest in something stupid.
What's ironic is that a healthy tech start up needs a very small amount of money. The less the better! I met a group of guys during Bubble 1.0 who got 10 million to build a website to sell Jazz tickets. Sureal.
This web bubble seems pretty similar to the last one, except now bandwidth is cheaper and advertising is easier.
@Stu: Your point about weeding out bad developers is spot-on, and I totally aggree. We were flooded with money-grabbers (and will likely be again).
However, I take issue with the fact that the companies that engage in the practices that were so rampant in the first bubble drove a lot of really good, competent people with TONS of potential right out of the industry. And you can bet that history will repeat itself, and we'll do it again.
I think that, during this bubble, I will create a website with tables all over the place, advertise it through google adstuff, stress it as "the ultimate web 2.5" site (people are going to be bored by this old web 2.0 stuff), blog about every little thing that happen to me at least 3 times a day, and watch the reactions of the web surfers that happen to believe what I say.
Because this time, I really want to get some fun before it crashes :)
I'll be graduating in 1.5 years. Hopefully this "hiring frenzy" is still going on then!
You can bring that tripe when the NASDAQ hits $5K again solely on the strength of tech stocks. What you're saying is tantamount to financial fear-mongering. Sure, there's not a lot of "real world" value to assets such as myspace, flicker, et al, but they are REAL, whereas a lot of what caused the first bubble-bursting was the vapor emitted by the technology industry at the time. Take it from the individuals who "survived" and thrived by providing real products and services throughout the era. No, no, my friend.... this time it's for real.... I'll check back in 4 years when we're still on a continued steady rate of revenue streams to say told ya so...
I managed to stay employed (self) during that time because I made sure to have 3 "keystone" clients that I knew were NOT going away - sort of the same philosophy as an investment portfolio.
My client list included a couple of Fortune 500's that I tried my best to keep happy, and it kept me employed for the 3 year interim. I kept my rate sane the whole time (which was low during the boom, high during the bust) and kept my trust level with them.
I am doing the exact same thing now as I know this market, like all markets, are liquid and will shift.
I don't see this bubble bursting as being nearly as catastrophic as the last one. The average joe investor still doesn't have a way to invest in web 2.0 (Unless he's put money into a VC fund) so you don't have hordes of uneducated investors throwing money into stocks only to pull out later when they find the stocks are worthless.
Because IPOs are a huge force in the market, this has forced most of the investing and buyout to happen at the large companies. These companies are far more likely to do research into the long term viability of their acquisitions and therefore make better decisions.
Also, the average person out there doesn't even know what web 2.0 is. It's not on the tip of every tongue the way the dotcoms were in '99.
Developers in the US are also more insulated this time as most of these companies are built on the premise of outsourced development.
In the long run I think if this "bubble" bursts, it will be a mere blip on the radar and is unlikely to have a major effect on the whole software industry. Sure Google may take a tumble, but there just aren't enough large companies with similar business models for it take us all down like in 2000.
In fact, its wrong to answer on such a topic...but I could not resist.
I could have written a lot, but the following words seem more the enough:
Ignore this thread as mush as possible.
I believe this bubble to have pretty mild effects for the IT industry.
The most important reason for this is that the bubble is based on cheap lending which affects other markets like the housing market a lot more. There are and will still be fringe effects on IT, but I believe that the fundamentals is a lot better this time.
For an Internet economy (and generally any economy) to grow there must be a strong element first: The Product. You think that the product and especially Internet economy products are not dependent on the underlying technology?
The underlying technology is the phantom menace for this bubble i think.
Since Web 2.0 is nothing more than a single source trademark, I wager that this bubble will be worse. There's even less there, there.
Been through the bubble, my company at the time, like most had no revenue stream clue, other than let's pile more investor's money's in. Have the employee's pay for company bill's.
We had plenty of opportunities for making money, but refused to even consider it.
I can still remember the day, they told us all, that they didn't have the money to pay for our paychecks. I couldn't believe the utter stupidity of it all...
Now, I refuse to work for a financially unstable company, and I try hard to find good companies to work for.
I still think the job hunting process needs a major transformation, because I think it's still a major mess.
But that's another day I'll comment on.
Not doing much different this time around. Just wanted to mention that this bubble seems to have a pronounced effect on India and Russia. Two areas that have off-shore teams I've worked with. Russia is now having almost as much trouble finding qualified developers as the US. Demand has really gone up. India is even more interesting since there are tons of people entering the workforce who are barely qualified to discern the difference between a method and sub. (In response to the lure of easy money). So the curve shown in the graph is almost a global phenomenon, not just a local one. Thats one aspect in which this bubble is different.
I plan to get into a bubble company early on, with a big signing bonus and pre-IPO stock grants. The trick is to extract as much money as possible before the burst. (I'm kidding, I swear. No, really!)
Craig M Rosenblum: Do I need to the comic featuring Bob the Angry Flower on apostrophes?
And two (more significant) problems for the 2.0 Bubble:
- since 2000, in the USofA, median income has fallen 5.5%
- since 2005, the number of households having Internet service has held nearly steady
The implication: Web 2.0 is chasing a much smaller, and not especially growing, market. If it's only distinguishing factor is spewing more pixel dust because bandwidth is higher for its segment of users, not much of a business model. Caveat programmer.
Web 1.0 worked because it was a new way of doing things. Web 2.0 is not, so far as I've seen so far. It's still buying stuff from a browser. How is Web 2.0 a different way of doing things? If DVD downloads suck up all the bandwidth (a la Cringely's lament), what's left? If Web 2.0 targets only those who can afford broadband (and the cost is more than just a DSL/cable line), and household income is skewing further toward fewer rich and more poor (see median income above), what kind of future can it have?
Im 24 I have Ten Grand. I missed out on the last bubble by 10 years, this time Im going to be a millionaire!!!
I graduated in May '02, right as things were getting to their absolute worst (according to your little graph). I got into programming not because I saw dollar signs but because it was the natural career choice for me; I'd always been interested in computers, was a numbers person, and previous experience had shown me I had some aptitude for it.
At that point it didn't matter. I spent nearly a year out of work after school because almost nobody was hiring. Anyone that was hiring had no reasons to hire a new grad because they would get a plethora of applications from experienced developers for even entry level positions.
Since I only got to see the worst of the last bubble I plan to enjoy the front side of this one as much as possible, and work hard enough to hope that if it bursts I'm not shown the door.
I don't have any get-rich-quick ideas, but there is one thing I do like about our industry: A good software developer is one good idea, six to 12 months hard work, and some luck away from quitting his day job and selling his own product.
I think the biggest mistake that many companies in bubble 1.0 made was:
Absence of a business/roi model.
In other words: How do you earn money with it ?
The most common "business models" in those days were
1) We will make money through advertisers on our site
2) We will be bought from a big player for insane amounts of money
Sounds familiar ? Indeed.
In bubble 2.0 it's the exact same mistakes again.People hoping on either cash in on Adsense or othe advertising but even more hope to be bought up by Google or some other player.The surprising thing is, global players unexpectedly *do* behave like there was no bubble 1.0 ever- think the purchase of Youtube, Myspace, etc etc.
VC's all over the place again, startups with no business plan all over the place again, copycats everywhere you look.
I really hope most of these social networking "companies" with all their shortsighted "r" names and Photoshop logos go bancrupt as soon as possible so that some common sense will hopefully be en vogue again.
Life is a series of bubbles, sometimes overlapping bubbles. I don't expect to treat Bubble 2.0 any differently than I did 1.0. I earned a decent living and paid the bills through 1.0. The same work ethic and motivators will take me through 2.0, 3.0, my youngest kid's high school years, my next Harley/Sturgis Rally, remembering to .ToString(), etc. I enjoy looking ahead, using my experience to guess how certain situations will play out and adjusting my position accordingly.
(...)"but the signs are absolutely unmistakable now"(...)
I don't agree. I don't even think we're in the beginning of a bubble, or that will ever be another one.
What planet are you people living on? I don't have broadband and no one I know has broadband. If you don't have a sky-high income or live in the center of a dense urban area, you're priced right out of the broadband market. I'm on dialup and everyone I know is still on dialup. Getting broadband would cost more than my property taxes per year.
Get real. Wake up and smell the latte, broadband is a delusional pipe dream for most Americans, and will be until the sadistically greedy and incompetent cable company/phone company broadband duopoly gets broken up by antitrust action.
what will you do differently in this bubble?
First, not make a dumb mistake of jumping to another company just because they offer you more money. Seek a stable environment.
Second, don't spend money foolishly like I did in bubble 1.0. Bubble 1.0 was the era of the leased weekend Porsche (which I was stuck with through the down times), bubble 2.0 is a purchased Honda.
Third, use the boom time to take advantage of benefits, learn new things, make new connections, so that when things get slow, you are ready.
Fourth, always be informed about what is going on, there were alot of warnings that people ignored. I see a great number of similarities between Bubble 1.0, and the current real estate market.
Crashes happen for a reason, they clean out the waste and excess in the market. In Bubble 1.0, everyone was a Barnes and Nobles educated programmer, now, everyone is a computer science grad.
oh man, i'm totally working for a bubble company. we have 100+ employees but no revenue stream. our burn rate is alledgedly millions a month. we have business models that could work, but probably won't because the business people are legally retarded. we have a new direction with little to no specs. and they are paying me a really awesome salary right out of college. *buckles seatbelt* *holds on*
I don't buy the premise. How is it a bubble? Where's the "irrational exuberance?" Where are the ridiculous P/E ratios? And what's with the graph? What is it supposed to mean? I don't even know what the data represent, but they show two different timescales, so whatever it is, it's not an apples-to-apples comparison. (What would Tufte say? ;-) )
The things you show as "warning signs" hardly define a bubble -- they're more like side effects, and are also found in a boom. The defining characteristic of the dot-com bubble was the non-sensical business models, the mentality that doing something -- anything -- on the internet was good by definition, that the normal rules of profitability somehow didn't apply. Put it out there and we'll figure out how to make money later. Are P/E ratios out of whack? And where are the day traders? I don't see any of that, and I doubt we will anytime soon, but that's just MO.
It seems a lot more plausible that there is pent-up demand for IT spending since companies froze their spending for those three years. Now that companies are spending again, there is more opportunity and hence more investment in the industry.
If Bill Gates gets his way and there is no limit on technical visas, our salaries will remain stagnant like they have for the past 7 years. Also many of us will get pushed out of the market based on our price, so it wont matter. :p
Unfortunately, internet usage growth tracks hardware software growth, so realistically we're still just running in place. 10 years later servers don't crash and burn as often as they did then, but you still have to provision enough extra bandwidth cpu to deal with all those new broadband users on your AJAXified site, and your software platforms have to be tremendously more scalable than they once were. (Fortunately, modern languages and platforms make this a bit easier.)
As for the bubble, I'll try to keep my day job and chase the get-rich-quick at night this time around. ;)
I was a little too young to have been part of the dotcom bubble 1.0, but I remember my dad's job (he was in hardware) going from a short-hour, high income, pleasant workplace to a 150-hour week with pay cuts and insane schedules. Just as all those late-90's startups were going bottoms-up, my dad actually left the industry for a job with a fraction of the salary, but better hours.
This bubble 2.0 will be nothing like that. Most active internet users have broadband. Even my grandparents do, and they just figured out the cellphone. With the open-source boom, everyone can run a cheap server out of their house, and recoup all their costs from easy advertising (thanks Google). It reminds me somewhat of the late 80s, early 90s BBS network, where everyone and his brother ran a system off a Winchester hard drive and an IBM clone.
Also, bubble 2.0 won't have as many small fortunes to be made. One original idea (Youtube) will make millions, or billions, and then all the knock-offs that use the same concept will get plenty of traffic - ergo more money - but not as much.
Finally, the idea of a internet-connected computer is an amorphous one. Do cellphones count? How about the PSP? PDAs? Everyone is always wired. There is no escaping the internet, short of Gene Hackman's Faraday cage-enclosed computer from "Enemy of the State". Nuff said.
"And what's with the graph? What is it supposed to mean? I don't even know what the data represent, but they show two different timescales, so whatever it is, it's not an apples-to-apples comparison. (What would Tufte say? ;-) )"
Dave, the file name should make it clear: nasdaq-graph-1997-2007.png
Great thing that i am seventeen and didnt experience the first bubble, which means that i dont have any mistakes to do again and are able to understand what everyone else did wrong seven years ago! :)
Some advice: "bubble" is the wrong word. "Wave" is much more descriptive: the irrational exuberance is going to carry a crest higher and higher until it's unsustainable and crashes down. So what do you do with a wave?
You ride it. The key is knowing ahead of time that the wave is going to crash, and preparing for it. Make your money while the wave is rising, and save it. If you're young, and single with no kids (and you live in a reasonably priced neighborhood), there's no reason you shouldn't be able to move towards saving half your income. "Save" is a loose term here; that can mean paying into a 401k, paying off debt, buying stocks, buying investment real estate, or...actually paying into a savings account.
By the way, I agree with Dave P. The P/E ratios are not ridiculous like they used to be, and VC's aren't handing out million dollar checks to 19 year olds anymore. The labor market for IS/IT is tightening, but that doesn't constitute a sector bubble, that may be a much more limited phenomenon.
This time... I wont use windows, the new generation of developers are starting to see that, like the mainframe before the pc, windows is like a giant aging ape who thinks he's still the king.
I'd like to ask a question somewhat related to this. What's the situation regarding subcontracting (*) in the States now, and how was it during the first bubble?
(*) not sure if it's the correct term: I mean when you're contracted by a company to work for a different company (which may then send you to a third company, etc).
"Great thing that i am seventeen and didnt experience the first bubble, which means that i dont have any mistakes to do again and are able to understand what everyone else did wrong seven years ago! :)"
I only quote this b/c it demonstrates the truly ideal case in that we will actually learn from past mistakes. The truth of the matter is that most people DO NOT learn from past mistakes. It's one thing to say from the outside looking in "I can study history and I won't make the same mistakes everyone else did by investing in company XYZ". But wait until you're on the inside or actually get caught up in the day-to-day AS IT'S HAPPENING--you get sucked into the euphoria and celebration cause we're all making money, it's the "New Economy", the VC money is flowing from a neverending source, we're young and brilliant and can do no wrong!
Consequently, I never worked for a "hot" company; I worked for Worldcom and, believe me, the little bit of euphoria that was there didn't last long once the fraud emerged. I lost a little, but not nearly as much as many others.
I also weathered the storm, lasting there until the recovery was in full swing and I was able to find a new job fairly quickly. I consider myself lucky and I appreciate my current job more if only b/c I've seen the dark side and it ain't pretty.
Sorry, couldn't help but chiming in.
Captain Obvious sez:
Build a sustainable business with real revenues, real cashflow and real profits.
Everything else will fall into place if you do that.
Jeff, I have to agree completely with Dave P.'s view. Some bubble signs are found in booms too, and I think what we're in is more like boom than bubble.
Bubbles occur when people begin to make financially irrational decisions, often claiming some rationality that just doesn't hold. In the 2000 bubble, money was pouring into the industry on the basis of new business model calculations around things like "eyeball count", rather than hard, attainable profitability.
Of course it's always easier to see the irrationality in hindsight, and it may be occurring right now and leaving us blind to it. But my perception is that business remains pretty hard-nosed these days, and that seems to me a good sign that we're not bubbling.
What people fail to realize is that a substantial factor in Bubble 1.0 growth was cannibalization of the post Cold War "Peace Dividend." We'd love to believe we were all so clever, so high tech, so efficient... but that was hardly a cause and more of a symptom.
As regulations on banking, tradem and commerce were stripped away unprotected consumers thoughtlessly transferred their surplus liquidity into the hands of Mercantilists. Taxation in western countries was adjusted to shift corporate responsibilities onto individual taxpayers, taking up the slack of the Peace Dividend. Consumerism paused as the mysterious cash well went suddenly and as mysteriously dry, and the Bubble popped. Plain folk lost millions in rented securities shares (mutual funds, 401K type accounts).
Bubble 2.0 came about through exploitation of the carefully nurtured consumer greed and shortsightedness of the 1990s. Careful political manipulation at national, regional, and global levels put a new mechanism into play. This set in motion a second round of consumer exploitation, funded from new sources. Domestic manufacturing and brick and mortar retail was cannibalized, mortgaging the future rather than the 1990s "pay packet bonus" that even the lowliest workers had seen.
Things are already starting to fray. In the US people are being distracted by the "sub prime mortgage market" woes. Sadly that's just a sideshow, a distraction, and one where liabilities have been carefully "sealed off" to leave US taxpayers holding the bag. If you want to be truly afraid look at other segments of banking in the U.S. - and the auditing firms scurrying to cover what they've found. The EU is another story, mostly due to a different political tradition. China... well let's just say the globalization windfall hasn't exactly been shared according to Communist ideals. Don't even look at India right now.
Yes. I think we're in for a bit of a ride.
Doesn't feel like a bubble right now. People still need skills to get hired.
The most similar chart for 2007 based on the NASDAQ COMPOSITE is 1993, the start or the bull market.
With the open-source boom, everyone can run a cheap server out of their
house, and recoup all their costs from easy advertising (thanks Google).
Does anyone question the viability of Google's business model? Are advertisers
measuring the returns on Google ads? Do they work, are they worth the money,
or is the jury still out?
And if Google goes in a few years, what ind of IT downturn would that cause?
I will do exactly what I did during the last bubble. I will keep developing software that people are going to need regardless of the state of the Internet, and which are not dependent on this year's fashion for their revenue. And just like the last bubble, the only effect it will have on me will be having to watch a lot of very serious-faced financial journalists on television.
@jan who says
It amazes me how people (see one of your previous posters) still think that technology is a relavent factor in the internet economy. It is not!
What do you mean can you elaborate ???
"This time... I wont use windows, the new generation of developers are starting to see that, like the mainframe before the pc, windows is like a giant aging ape who thinks he's still the king.
ryan on April 23, 2007 08:48 AM "
Very true. (Ubuntu, etc). One potentially enormous and pervasive thing that differentiates "2.0" from "1.0" is the ease of mass collaboration, and opening previously non-porous walls, corporate or otherwise. The new business model is developing of how to create value (make money from something useful that becomes in demand) as a result of shared information. Look how many API's are available now - it's getting to be the norm.
Also, consumers are influencing corporations directly now - Dell caved to not requiring Vista on new machines, as well as offering Linux OS installation options - both as a result of feedback from their IdeaStorm site.
Anyone who wants to weather the ups downs would be well served to read Wikinomics and understand how collaborating with anyone anywhere anytime on anything will influence and change conventional business. Red Hat figured it out with unix.
Amazon is is the deepest and most versatile and adaptable online company - dig into their Associates features and other growing forays into effective business tools readily available to the little guy.
Previous comments on smaller amounts of seed $ needed to launch a product are very true. Likewise, having a viable product is key.
Check out this quote from the April 9th cover story in BUSINESSWEEK about Google:
Box Heading: "Where Google May be Headed"
Caption Title: "A Living Machine"
Caption: "...Google could morph into something out of the dystopian darkness of THE TERMINATOR. Does the Google grid, once it comprises millions of machines analyzing the whole of human existence, at some point become sentient - for all appearances, a thinking machine?"
Surely this type of fantasy sensationalism belongs in WIRED, but BUSINESSWEEK? We are definitely in SOME kind of a bubble.
I think there are people now who are smarter and wiser, but that doesn't mean that investors will be.
Personally, I think that many of the mistakes made in B1.0 can be avoided using feet-on-the-ground logic, and it's not a secret.. The wisdom of the ebook by 37signals maps out how to create big things in a sensible order and with budget sense built in.
There's gold in them there hills! Get out of my way! Some of it's mine! Do you here me? Mine! Mine! Mine!
I'm not convinced that there will be a bubble.
I think it's only in the later parts of a bubble that the "greasy odor" becomes overpowering, as you put it- and we're not quite there yet.
I jumped ship from a small upstart to a more stable company just before the 1.0 bubble burst. I've recently jumped again. The writing is on the wall.
The next decline will have nothing to do with Web 2.0 though. It will be about something more fundamental:
'Do we need this much IT to run our company?'.
The big companies will begin to cut down on their IT spending as they understand they run just as well at 50% the IT cost.
Many consultants will loose their contracts and the hourly wages will start to decline. That means IT wages in general will follow down shortly.
Large application servers, big business systems, complicated frameworks and models for development, they will all feel this one. No one will want to pay people for setting up SAP, configuring websphere, etc.
IT as a field will move from complexity to simplicity, and that will be the REAL backlash. If you aren't AGILE and using PRODUCTIVE tools for development, you may find yourself in a rough spot.
Its coming. Give or take 1-2 years in the US, and 2-3 for Europe to catch up.
"what will you do differently in this bubble?"
from different perspective those two bubbles are one the same bubble. but that's another bubble all toegether.
difference is that now we have means, infrastructure and knowledge to use, to hook up to growing sphere, so it won't end up being bubble burst. problem with bubble is that outside area is always greater then its nucleus.
Lots of interesting points here. The Web is here to stay and it's to everyone's benefit to make it benefit everyone especially to help the poor and marginalised. So if we see it not just from a greedy grab perspective but as something that can really increase the quality of life out there then we can also say the Web 2.0 can be for the good. But at the same time we must be aware of the way say YouTube is used to humiliate school-teachers and to re-inforce acts of gang-violence(as with guns (swords!) the quote from Homer's Odyssey is relevant: Bare steel in sight draws men to fight(the Web has enhanced for better or worse aspects of human nature). Web 2.0 is different. When K1 then known as Filmbaker set up the London Photo Document 1999 the project collapsed as no-one had digital cameras and as has been pointed out modems were purgatorialy slow. It's different now. The bubble may burst but this time it will be spectacular and unlike the last time it will be all over the web!
"I saw warning signs all over the place in late 2000"
You called the last one really late.
You're calling this one really early.
Don't Call It a Bubble
It may be tempting to draw parallels between Web 2.0 hype and the dot-com frenzy. But hard numbers show this isn't 1999
GRANDPA lived through the Depression, and life thereafter was indelibly shaped by haunting memories of soup kitchens and hobos. Similarly, the digerati of Silicon Valley endured the 1990s dot-com bubble, and since then have lived with the psychic shock of its ignoble end.
The average valley entrepreneur tends to spot bubbles everywhere, much the way granddad feared financial ruin every time a grandchild carelessly scraped leftover food into the trash.
This is the start of a very small bubble. The world learned from the late 90's what can happen if things get too out of control. The one good thing that the dotcom bubble proved was that only the strong survive (ie microsoft, cisco, oracle, etc). These companies will be a huge part of the current bubble. However, looking back at 10 years ago, you will not see as many smaller players get into the game. It will be hard for them to reinvent what has already been perfected (somewhat) and try to survive it. That is what happened in the late 90's and many got burned.
WOOHOO! SWEET IRRATIONAL EXUBERANCE!
Interesting read. Not a lot you can do to avoid the bubble, except not work for a bubble company!
I think Vertigo should survive just fine, as it's not directly dependent on the bubble.
Bubble? What bubble? I don't see a bubble from here.
This bubble is going hand in hand with the global Real Estate bubble. However, this time programmers in Bangalore will be lucky to sell bananas on the street, while we will sit here in our Million dollar condos buying $9/gal milk and $6/gal gas on unemployment checks.
We'd sure have some sweet stories to share with our grandkids.
Well, we've got some issues. This time it isn't a bubble, it's a scum blister. There will be casualties.
In 2000 the web's value was full of air, there was no substance. Sure, the internet is the future of literacy, the future of money, and the future of manufacturing and trade. It'll all happen online.
The problem is that a lot of the companies today are full of spam, full of trolls, full of spam, and full of fraud. The web is a bigger mess of misinformation and suspect requests for money than it has ever been. There'll be a big crashing mess when all of this filth floats up to the surface, and people lose faith.
At the moment there's a lot of people online who just don't have the skills, and don't have the critical faculties. Google is one of these collections, they're in real danger of falling victim to the rot of spamming and ads that don't work.
As the users of the online world get smarter, and wiser, there will be many big boys biting the dust as the king size skeletons come kicking and screaming out of the cupboard.
RE: Sorry, couldn't help but chiming in.
Captain Obvious sez:
Build a sustainable business with real revenues, real cashflow and real profits.
Everything else will fall into place if you do that.
Either by doing real things in the real world, enhanced by digital comms and admin, or perhaps you might just be selling the crazy frog, which hurt my ears in the real world.
do remember that the web is the coolest and most amazing thing in the history of humanity. We've built a better mousetrap. This will have more of an impact on our values and wealth than the industrial revolution, for sure.
yes, of course. Hope to know more important things regarding design from it.
what will you do differently in this bubble?
Well, I will be more sceptical of just about everything. 'Technologies', 'paradigms', and any kind of promise--from vendors to my own management to McKinsey
consultant predictions of rapid, long term growth of X, Y and Z.
In the last bubble, I took equity in lieu of salary. 1% of nothing is nothing--lesson learned. I put up with terrible behaviour from coworkers and management. This time arround it is about the environment and cold, hard cash.
In the last bubble, I worked as much as 100 hours. It was fun, it was educational...but I didn't really have much of a life. This time arround it is about balance.
One good thing about the last bubble bursting was that many people who landed a development job (qualified only by a steady pulse and ability to mark X on the dotted line) left.
Sadly, a new bubble means a new generation of hoopleheads searching for digital gold in them there software hills.
@Mike: Yea, I won't disagree with the fact that some quality people left as you say. For me, it was more frustrating to see (and interact with) those that should not have been there in the first place...so I focus on that.
For those competent few who left IT for something new, something saner, well, I only wish them the best. (There does seem to be something peculiar with our industry, in general, where many competent folks want to move on after a while.)
Need a better headline - Bubble 2.0
Not be in the bubble.
Can someone please explain what is web 2.0? I understand the orignal bubble with the internet being used for public consumption and the growth around that. But I an failing to see what is web 2.0.
Anyway, I hope people aren't still investing in "digital donkeys" like they were in 1.0. I think that will be the biggest difference this time. Web 1.0 was for crazy business ideas, hopefully in 2.0 these ideas are more refined.
I also read a lot of posts of IT slavery during this period (60,70,100 hours a weeks) with web 1.0. I hope we don't go thorugh another round of that nonsense.
What if it turns out to simply be the nature of the "information economy" to be..."bubbly". If one accepts that innovation can happen much faster in a digital realm, then it would seem to be natural for business cycles to compress, perhaps drastically. The bubbliness seems to be an effect of the notion that anybody at any time can start a great enterprise (which ultimately may be short-lived). On balance I think that leans towards being a good thing, although it is certainly disruptive.