Is there another bubble forming? No and here is why…

I have personally been in what is known “digital” industry since the birth of the Internet back in 1991 when Connect.com.au was born with Hugh Irvine and the boy’s, and Mobile since 1999 working for Connect. The next year on March 10th exactly on the day of writing this, the “Dot-com Bubble” burst and everything in and around it came crashing down.

Over 1999 and early 2000, the U.S. Federal Reserve increased interest rates six times, and the economy began to lose speed. The dot-com bubble burst, when the technology heavy NASDAQ Composite index, peaked at 5,048.62 (intra-day peak 5,132.52), more than double its value just a year before (almost where it is today).

In the 90’s I witnessed the careless, ill-informed investment and capital raising that was ripe and wondered what they actually did with all that cash, I mean how does a start-up with 23 staff most coders burn $40M in a year? I also questioned how an Internet start-up could be valued at $500M without a clear business model that actually generated revenue.

Always the question was glazed over where does the income spawn from dispute having millions of users that access the service for free? Back then and to some degree today the financial suits and the VC’s to some extent pump up the value and head straight for EXIT stage left. Now here we are today with Internet company’s valued by what I call the “$80 p/user rule”, where valuations seem to equate to $80 per user e.g. Google 600M Users @ $80 = $48B, Spreets 500,000 users @ $80 = $40M and so on.

Today we have whole generations that grew up with the Internet and most people grandparents are using the channel so people are a lot more aware of what constitutes value. In order to succeed today you must offer clear value that is unique at an easily digestible cost. SaaS running from the Cloud or Cloud services is the answer, something not possible until lately due to language developments and bandwidth for example.

I might suddenly need to send a Fax to a government department as that is the only option I have, but I don’t have a Fax machine, I can now browse to http://faxzero.com/ attached the files and send. It’s all about subscribing to software services when you need them, not purchasing shrink wrapped software and installing on local drives. There are literally thousands of Cloud services models on the Net and for a few bucks a month you can subscribe to a robust accounting, publishing, and project management etc. service.

The demand for talent is at unprecedented levels. Companies like Google to Facebook have developed a strategy around acquiring companies simply to bring good entrepreneurial talent in-house to supplement R&D. Value of talent seems closely aligned with the rate of innovation, and this pace is only increasing.

There are more elephant hunters out there. Angels probably don’t care if they pay up for the right company/team as long as they have a shot at oversized valuation and a smart exit strategy.

We may be heading into another bubble. It’s possible we’re already inside it. However I feel that if in fact there is a bubble it is likely to implode on its self as most of the money on the table right now is money is from angel, private equity and VC’s, in 1999 it was IPO led involving public investors. Those public investors looking for a nice ride are a lot more courteous these days for good reason. At the end of the day as my father always said “sales run the shop” so people will look for a clear business model that involves a steady stream of revenue, the market is there now with 3 billion connected people (fixed/Mobile Web).

 

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