Hacker News Reader

Comment by Silhouette | Hacker News Reader

To me, that is the surest indicator of a bubble-like market. I think some of the recent valuations for companies with many users but no profit nor any obvious business model are dubious at best. However, I think the valuations for companies that depend exclusively on one framework/inftrastructure base provided by another mega-valued company are downright crazy. Companies like Facebook have come and gone before, and when they go, they often disappear into relative obscurity pretty quickly after losing critical mass. Investing heavily in a company built on that foundation is compounding two very high risk strategies, which doesn't sound very smart to me. But then, I'm not a billionaire VC, so maybe I just don't get it. :-)

View on HN

That's probably a bit overstated. Many, many companies are completely dependent on the Microsoft framework or the Oracle/Sun framework, yet there is not an issue with that.

The bigger issue is they are dependent on frameworks that are still evolving at very high rates. Rapid changes brings a lot of chaos into the equation, which is dangerous from an investment perspective, but that same chaos can lead to unexpectedly strong results as well.

But the difference is they're not dependent on the Microsoft presence. If Microsoft ceased to exist tomorrow (localised meteor strike, let's say), the code running on .NET, Windows, etc. will still work. If Facebook is down, so are you.

That isn't really true. If Microsoft somehow ceased to exist, business would switch away from Windows and products written exclusively for that platform would be toast. The difference is really that for internet/cloud platforms, temporary outages can lead to lost revenue--which everyone developing apps on those platforms hopefully recognizes, especially given Twitter's former reputation for instability.

But the switch would not be immediate, a least giving providers some time to move to other frameworks. As you say, from a slightly different angle, it is the immediate effect that is the problem with relying on facebook or a similar network for your business: if they fall over tomorrow or simply change their rules so your product does not comply, your revenue stream stops that instant and until you can design and implement changes in the product or business model.

I doubt many businesses that have built and scaled their infrastructure on Microsoft systems would overhaul their entire operations just because Microsoft itself disappeared. Consider the amount of legacy systems still in use in large enterprises today; many of these were originally designed by companies that are long gone.

If anything, the collapse of Microsoft would produce many smaller companies competing to satisfy the ubiquitous demand for Windows support.

I don't agree with this at all.

Yes it's true that your products wont stop functioning in the short term, but a dead framework that's no longer supported and updated means you HAVE TO rewrite it using another framework. and we all know how costly rewrites are.

I find the 2 scenarios you listed to have much more in common than not. The main difference is the amount of time you have to react.

> Many, many companies are completely dependent on the Microsoft framework or the Oracle/Sun framework, yet there is not an issue with that.

The difference is that if Microsoft of Oracle/Sun disappear, the framework does not.

There is another rather unhealthy (IMHO) trend in the market today for DRM to be applied to everything. That can mean that products consumers have paid good money for can effectively just be switched off arbitrarily, and that's why I don't personally buy things that are DRM'd in such a way.

Developing for mobile platforms can be similarly risky. For example, my startup has no current plans to build an iPhone app, even though our users might appreciate it. We simply don't trust that Apple will not just arbitrarily squish us and not even notice/care based on their track record to date, and we would rather invest our money in safe platforms like the web. Apple aren't going to stop shipping a browser that can view modern web sites, it would kill their products.

What you're seeing here is leverage. Basing your business on Facebook gives you very high potential market exposure vs a total dependence on Facebook.

It's analogical to buying shares with borrowed money. You've increased the potential upside, but now the downside is that much more catastrophic.

Exactly. And given what excessive leverage did to the world's financial markets not so very long ago, I think relying on that kind of leverage again in this market is crazy.

This is a really bad argument. You're implying that the leverage discussed here (coupling your product with Facebook) is the same as the leverage that caused the financial crisis. The only thing they have in common is you can use the word "leverage" to describe either of them.

The two leverages have another thing in common - risk.

Yes and no. If the companies in question are privately held then to a certain extent the risk is only with investors brave (or foolish) enough to back them. However, what do you think would happen to the tech industry, and potentially the wider world economy, if a big name company suddenly went up in smoke, public or otherwise?

Now, please pause for a moment and consider: it doesn't have to be Microsoft or Apple or Oracle. Some of the crazy valuations are putting much less robust companies within an order of magnitude. If one of them goes, it's going to be big news and stock prices right across hi-tech industry could race to the bottom scarily fast as we've seen before.

If you are, for example, Zynga, then the kind of disaster that could lead to catastrophic failure seems awfully difficult for you to anticipate or control. Likewise all kinds of new companies being built on Twitter and so on, keeping in mind that Twitter (as far as I know) doesn't actually make any money itself yet and could easily be displaced by the next new shiny thing tomorrow.

I'm not saying it's going to happen at all, never mind tomorrow, but there is definitely a house of cards building up here, and of such things, market bubbles are made.

So if my business relied on airfreight I am leveraged by the airlines, the airport owners, the aircraft makers, the pilots unions, the oil companies ....

So logically anyone who wants to ship a physical product should start by developing their own oil well and aluminium ore mine.

Just imagine that all of the above were owned by the same company/government, without any real competition.

The better analogy would be: if you business depends on Delta Airlines you should have a good chat with other Airlines to expand your business. It' s a common pattern in the non-virtual world that dependency on one exclusive channel/customer (Ask textile producers in Pakistan about IKEA) is prone to fail.

And indeed, if your business depends on airfreight you will also be strongly coupled to the destiny of that part of the industry. There's no need to develop your own oil well, but to have a vision about alternatives is a good thing in that case. Branson's Virgin sells records. And airtravel. And Mobiles. Would he have survived by betting exclusively on Sony MiniDisc ?

Well, for what it's worth, airlines do engage in quite a bit of commodity price collaring in order to ensure that fuel price fluctuations don't totally destroy their business model. This is in some respects de-leveraging at least as far as this conversation is concerned :)

See Zynga.

Reply on news.ycombinator.com