We’re In The Middle Of A Terrible Blubble | Hacker News Reader

We’re In The Middle Of A Terrible Blubble

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187 pointscwan71 comments

1. Build software that provides value for your customers and their customers so that everyone gets paid and makes money. Repeat for years.

2. Stay busy and keep learning, but since you know that none of these things really matter, you can ignore all Hacker News posts about them:

  - the bubble
  - the best language to do <x>
  - how to blog about <y>
  - how to tweet about <z>
  - your Facebook prescence
  - why technology <a> is dead
  - how to make Hacker News better
  - how much to pay for a domain name you must have
  - how to "socialize" your app
  - how social apps are changing the world
  - how we are losing our civil liberties
  - what makes Apple so cool (they are, but who cares)
  - what makes Microsoft so lame (they are, but who cares)
  - how to interview (just be yourself)
  - who's hanging out with who (who cares)
  - how to build software without programming
  - how to network (just get out there)
  - how to get rich (do the right things and let that take care of itself)

I would venture to say this is the best comment I've read on HN, ever.

Seconded. I would add something about "(i) Killer" posts, too.

Almost anything by TechCrunch, since I've been aware of them, has been fluff along these lines. Sensationalist garbage.

What I'd like to see is a set of sliders. The top slider would have code ---- surf. The next slider would have video --- text.

Then you could drill down to "language x" stories or the rest on the list.

Set your sliders, then have the computer throttle the content.

The problem is the social nature of the web: I see somebody cool like edw519 commenting, so I try to form a pithy rejoinder, manging to kill an extra 7x the time. The 10 second scan morphs into a 5 minute read and reply. Rinse and repeat x times daily.

I contest the "losing our civil liberties" not being important. If there is any issue that is actually important, it's that one.

So, as we have said before and will doubtless have to say again, Hacker News is a lousy forum for political teambuilding and logrolling. It's not designed for that, at all. So we discourage political discussions here.

There are actions one can take to defend one's civil liberties. Joining the ACLU and the EFF and sending them money. Writing letters to local and national political figures. Voting out people who don't care about civil liberties, and raising money for their opponents. Practicing civil disobedience. Organizing and contributing to effective protests. Many of these are praiseworthy things, productive things, but they are also exactly what we mean by "politics", and they're not what we do on Hacker News. They are what Facebook, mailing lists, political blogs, newspaper editorial pages and comment sections, and most of the rest of the web is for.

As an activist who's actively engaged in defending for our civil liberties, I see HN as a great forum. True, there are plenty of people who share your and edw519's attitude -- but civil liberties topics always got a lot of upvotes here, so there are a lot of people who see things the way I do.

Yes, there are a lot of people who seem not to have read the site's guidelines (which include "no politics"), but that doesn't make it appropriate or right. Please let Hacker News be what it is. There are hundreds of sites for political axe grinding.

  - what matters and what doesn't (who cares)

Seriously, and for argument's sake, the "do whatever provides value" mantra is too simplistic and provides no value to entrepreneurs or engineers (or hybrid types) whatsoever. Let alone that it doesn't contradict to any of the "lame" stuff you listed. For example, understanding how Facebook works both at the social level and technically may help you in building something that provides value to 600,000,000 Facebook users.

Finally, listing "how we are losing our civil liberties" somewhere between "who's hanging out with who" and "how much to pay for a domain name" is the best way to bury the remains of our civil liberties.

Thank you for raising this issue. "Who's hanging out with whom" is in the category that's both unimportant and very hard for an individual to change. The loss of civil liberties is a matter where it's very hard for a person to effect change, but it's an extremely important issue. I don't think it's very useful to spend 4 hours per day on the Politics section of Reddit, but to call politics "unimportant" just because it's impossible for an individual (in most cases) to make changes is short-sighted and wrong.

   The loss of civil liberties is a matter 
   where it's very hard for a person to effect change

I disagree.

In short I think good work in software and internet communications tools, like Tor, can actually have a profound effect on shaping government policy. (Tor is one of the darling s/w projects of the Swedish government.)

Slightly longer: I thought it was essentially impossible to influence government policy four or five years ago. I was interested in environmental issues and thought I would have to become a politician to be able to change things (heavens forbid). Then I fell into an opportunity where we started an open source software foundation to build online project, transparency, donation, visualisation tools for development aid.

Fast forward four years and we are working closely with the Dutch Ministry of Foreign Affairs. Get invited to publicly review the work of the Swedish counterpart and sit in on bilateral talks between the USA and the Dutch on aid transparency. I see public policy change before my eyes. Of course, this is not only because something which we did, but we are at the right time and place with the right effort. However, I do know that our work changes the way policy is being shaped.

If you are curious to read more check out a couple of my blog posts:

http://bjelkeman.wordpress.com/2011/02/06/law-is-hard-code-i...

http://wearefuturegov.com/2010/11/19/guest-post-where-open-d...

but to call politics "unimportant" just because it's impossible for an individual (in most cases) to make changes is short-sighted and wrong.

Politics is important in the sense that someone needs to take care of it, but due to the reason you outlined it's unimportant to me. Given that, I'm happy to save time ignoring political stories and issues but I still think it's important and if no-one else were willing to take care of those important issues, I'd need to step up to the plate. Thankfully, they are, so I'll let them get on with it ;-)

Why I don't like lists like this:

how we are losing our civil liberties

Can I ask if inserting (sneaking?) this not-trivial topic into the middle of the list along with "what makes Apple so cool", is maybe a bit, uh, underhanded? (Assuming we're in a democracy, it's supposedly up to us-citizens to care about civil liberties - so talking about this is important even if the sky is not fall). I notice there's not parenthesized easy answer either (is it "who cares" or "write your congressman"?).

Also, if you were following your own sage advice, what force brought you on this topic?

This is actually quite a remarkable piece:

1. It gently mocks the investors who proclaim "bubble" as a way to bitch and moan over being caught in a price squeeze.

2. It lampoons the alarmist press accounts of the same "bubble" as a sort of guilt-ridden desire to atone for having so idiotically missed the real bubble of 2000.

3. It deprecates its own author in two splendid ways (swimming in the bubble froth of holding a worthless vp biz dev position while on the ascendancy and swimming in booze in the aftermath as the illusory fortune took wing and flew away).

4. It offers some sharp and pithy contrasts between what is in fact happening today (some over-excitement in select tech areas) and what happened in 2000 (spend, spend, spend and to hell with fundamentals), all of which in fact draws a sharp contrast between what was indisputably a bubble back then with what is (likely) not really one today.

5. And it does all the above with tongue heavily in cheek, right down to the very title ("blubble").

You can love or hate Mr. Arrington, and he is undoubtedly one who provokes strong reactions from others, but his work is anything but routine and, at times, it even soars.

Name a company in this "bubble" that has wasted $100 Million dollars like Boo.com or pets.com or $50 Million like flooz without producing even 1% of that in revenue.

If not, then there is no bubble. Facebook makes in the ballpark, if not close to, two billion dollars in revenue a year. Hell, even Groupon would be a better buy today than, say, hotmail was, and Groupon got offered 2x the price to be acquired and turned it down. The only thing even remotely close to the bubble of old would be Twitter, and they have 200 million users. Name one service during the dot-com era with anything approaching that number. During dot-com bubble, AOL had the most that I can recall, and their peak was something like 26 million or so.

Repeat, there is no bubble.

It's still to early to tell but Color (www.color.com) which gathered $41 milion may be the first to fit the bubble profile.

In all fairness, there's nothing wrong with raising $41 million dollars if you're not burning through it. Color Labs could be stashing all that money in a mattress somewhere. Also, the founders of Color Labs have a history of extremely profitable exits (LaLa, Onebox, Photobucket, etc).

As I said, its too early to tell, especially with all the talent at Color Labs. Most of us might be wrong about their product.

Regarding those 41 million dollars, VCs invest to make a profit.

The only valuation that got me close to thinking 'wow, crazy' was hearing that foursquare is raising a big round at a $500M valuation.

The rest of them, Facebook, Zynga, GroupOn etc. make some sense

Foursquare probably gets funded on the same concept color did. It's more about the data it can generate and sell, not the product itself. I'm still not convinced that it's a viable way to cover that kind of value.

Didn't Facebook escape SEC regulations with Goldman Sachs to avoid mandatory publishing finance details? Where did the $2 billion a year come from?

Isn't that basically what the article said? Did you read it?

Yes. No. I imagine most people here (judging by the comments) misread the headline and the URL it was on and then commented without going further than that. This results in a bunch of posts which parrot the original article and add nothing of value. They simple add useless noise.

A few of us can safely sit here and comment, and vote down the comments that do not offer any insight or contribute to the content of HN, but I fear we are in the minority.

Is it possible he was simply reiterating/corroborating the point?

You'd have to read his comment out of context to believe that. No. This was a response to a misread headline.

"The only thing even remotely close to the bubble of old would be Twitter, and they have 200 million users. Name one service during the dot-com era with anything approaching that number."

The raw numbers may have changed (there are more people on the internet now) but the strategy is the same. In the late 90's it was all about eyeballs, actual profit be damned. Nowadays it's all about "social". Twitter, Facebook et al are going down the same road: many ephemeral eyeballs with no discernible path to the kind of profitability tech sector investors expect. They are at best media plays, and over the past 10 years we've seen how unkind the market has been to the likes of AOL and Yahoo.

Groupon may be the standout company of this era (who knows?) but people who boast of Groupon's numbers don't seem to understand that most of the revenue goes into the retailer's pocket. It's an as yet unproven proposition that there's substantial money to be made in dipping into the razor-thin profit margins of struggling local businesses.

We won't know who wasted $100 million+ until it's all over -- that's the thing about bubbles. The oversized VC funds and oversized valuations are relatively recent phenomena and it will likely be at least 18-24 months until the well goes dry. But when you see billion-plus dollar VC funds and a dozen me-too venture backed companies in the mobile photo-sharing space alone, well, it doesn't take an expert to see the froth in the water. Personally, I wasn't alarmed until about six months ago.

Why should any of us care? Because after the party's over the tech sector is in for a rather bad hangover. The jobs and the capital will disappear seemingly overnight. As entertaining as it can be to watch things go boom, I'd much prefer sustainable growth.

"we won't know who wasted 100mm until its over"

word

"most of the revenue goes into the retailer's pocket"

I thought the standard model at Groupon was 50% to Groupon (who carries no inventory, or service costs) and 50% to the retailer (who carries all the costs of the product sold to the customer).

Outside of advertising and sales, Groupon is close to 100% margin (they carry a bit of the per-coupon merchandising and servicing cost)- the retailer carries all the cost of the product that the customer actually buys.

it got fundamentally cheaper and easier to scale: so X million users now is not X million users then! Also people learn to find new ways to make unsustainable deals and bubbles come and go. So saying there is NO bubble at all, is probably wrong most of the time. But i agree, todays tech companies produce value. But in my opinion they do not solve significant real-world problems (optimizing communication is not enough). we tend to forget that there is a world outside the internet.

> Name one service during the dot-com era with anything approaching that number.

200M site users in 1999? Are you serious? Was there even a total of 200M online in US for all the sites combined at that time? I doubt it. If you judge by that you'd have to scale it accordingly somehow.

You don't need to scale it some how. 200 million users isn't worth less today than 200 million users yesterday or tomorrow.

EDIT: actually if anything, 200 million users today are worth much more as people are much more likely to spend money online etc. A business's relative position in the online space doesn't affect how viable that business is.

it does matter. if the rate of growth of US internet users was greater back then, then it could be assumed that internet based companies would grow faster.

http://xkcd.com/605/

Instagram, Color, Path, Foursquare, Gowalla, Twitter, Quora to start.

> Name a company in this "bubble" that has wasted $100 Million dollars like Boo.com or pets.com or $50 Million like flooz without producing even 1% of that in revenue.

Color got $41 million, which is almost at your limit.

Not a fair statement. They haven't wasted it yet. The only just got it. You can't expect them to be making money straight out of the gate, especially when their product's only just became version 1.0.

At least so far it's just VC money that will be wasted in this bubble. Money from people whose job it is to invest properly, so if they lose it all it's quite literally their own fault.

It's not a giant wealth transfer scheme from Main Street to Wall Street like the last bubble. Not yet, anyway.

No, we have more efficient mechanisms for that now.

Suppose there are no companies such as Boo.com today. It doesn't mean there's no bubble. To say that there is no bubble, you'd have to make a convincing argument that the valuations companies are in line with the (future) demand for their services.

I'd really love to read a fair analysis of whether there is a bubble, but I fear the completely understandable bias of TechCrunch and HN is preventing it. Still, I like to think of us as a curious bunch and I hope we will talk about this honestly at some point.

"Anyone can be a biz dev executive because it’s not a real job. It’s kind of like sales but you usually don’t have any kind of quota. You just work on 'deals.' "

Haha. Love this comment. Mostly true - I know, because I work in biz dev and have worked with a few of the biggest companies in the Valley. Looking forward to eventually having an actual job, but have to admit it's a good gig for now.

Oh man, that burn rate thing is true. Back in '98 or so, when I was living in Bloomington, Indiana, I interviewed with a guy who was forming the "first dot-com in Indiana" (despite the fact that my own vivtek.com dates to 1997, and I'm pretty sure efax.com was based in Fort Wayne). I think it was some kind of real estate site; he was a local ISP.

During the interview, he took a phone call to scream at AT&T about connectivity issues. When it came to money, I named what I thought was a fair market price and he sat there, stunned, and blurted, "You make that much with that site"?

Well. I made that much with consulting work, and so that was kind of the clue for me that this wasn't going to work out. About two weeks later, after not having heard anything from him, I told him as much and asked him to destroy the code samples I'd sent him. He responded that the disrespectful manner in which I'd treated the officers of the company had already led them to decide not to hire me.

But you know? He sure did get his venture capital, apparently in rather large amounts; I heard figures around a million. He moved offices from the building they already had in Bloomington, up to Indianapolis, and later I heard that he'd been advised that their "burn rate" was not high enough. They weren't spending enough money. So they started flying by private jet instead of regular flights, for instance.

Madness.

Yes, he crashed and burned. I don't know what became of him, but when the economy went south a couple of years later and I qualified for EIC, I knew exactly why.

That isn't happening now. Everything I read about startups includes "how to manage your business". People understand business processes, mostly. There is a concept of spending money only if it's actually necessary, not to increase an artificial burn rate metric to impress capitalists that should damn well know better.

My intuition tells me that this isn't a bubble - it's just what we should have done the first time around.

Most of the recent VC funded Internet companies that have gone public have never been profitable in their life (which sometimes stretches a decade of existence). For e.g. -

DemandMedia Makemytrip Zillow Envivio

According to a recent WSJ artcile[1], 11 of the 30 tech companies going IPO this year have been in red and 19 reported some profit last quarter.

That is definitely a sign of bubble if we take a cue from the 99-2000 bubble.

[1] http://blogs.wsj.com/venturecapital/2011/04/19/a-look-at-the...

The fact that it's not like the one from '99 doesn't mean that there's no bubble. One of the reasons bubbles happen is because after each one we are looking for that one but a different one occurs.

A better term is "growth phase". This growth phase, like the late '90s, creates new jobs, new technology, and new industries. All of those things are important for a healthy economy. Eventually, some of these new companies will get bought out or go out of business. So what? Everybody is better economically because the founders and investors at least made the effort.

A big factor in the dot-com bubble was a belief in the so-called "new economy", where people, because of the Y2K scare or whatever else, believed that companies didn't need good financials ( http://www.investopedia.com/terms/n/neweconomy.asp ). I don't think anybody has any illusion during this growth phase that solid financials aren't important.

Interesting reasoning. A bubble occurs when an economic sector experiences growth that cannot be explained by the fundamentals (supply and demand). Overvaluation is implicit in bubbles. Keep that in mind while reading the following sentence from the article:

"No, the biggest problem [in 2000] was that no one had any idea how to value [tech] companies."

So, the problem with the 2000 bubble was that there was a bubble. However, it's different now because Wall Street knows to look at user-bases and page views, and the companies don't hire as many sales people as they did in 2000. That doesn't seem like a serious analysis of an important topic by an expert.

I was re-reading pg's essay and it convinced me to move to the Valley (today's Florence), but now I hear that there could be a bubble and I could be too late. Any advice? (Currently living in Beijing, which is said by some to be China's Silicon Valley, but hey, I don't smell any sign of real innovation here.)

If you are doing something important and useful well, where you are and what is going on around you doesn't matter much.

I imagine if you start turning over some rocks in Beijing you will find some interesting innovations. You live in a country with like a zillion people. Somebody over there has to be doing something with social that blows crap like facebook away.

This really is the best writing on the current tech economy I've read all year.

Yes, there a growing financial problem in the tech community. No, it it not like the bubble of the late 90's and it's silly to call it such a thing.

I thought Michael conveyed the message about as clear as possible without taking this thing too seriously.

Meh... who cares?

Bubble, recession, natural disaster, war, whatever... there is never a "perfect" time to start a business.

If you have a good idea and a repeatable model with an output that costs less to produce then to sell... start the business right now.

Forget about mysterious bubbles that other people are telling you about, get off of your couch and do it. Now.

Why does any if this matter, bubble or not? The tech community has spent an inordinate amount of time discussing it. What I see is a lot of companies building businesses the right way -- customers first. If the funding dies down, which it will one way or the other, these companies who have put customers first and will be able to survive. As for the knock-offs and clones, well, if they go away will anyone care?

That explains the old "we sell below cost and make up for it in volume" saw.

Always thought it was a joke, not good advice in light on a crazy situation.

When I read stuff like this, I feel quite unsure about the truth %:

Everyone lost money on every transaction and nobody cared. Because your stock price was tied to revenue, and when you ran out of money raising another hundred million dollars was nothing more than a fancy powerpoint presentation and a month’s work.

To have a bubble, we need a lot of large and irrational public investments at extreme valuations regardless of profit. At this moment we have extreme valuations and large investments, but "a lot" and "public" are notably absent; we have a relatively small number (a dozen or so) companies with extreme valuations. So it's not a bubble.

That being said, we are still not very far from one, since the only thing preventing the current situation of becoming a bubble is the fact that the biggest players are not on the public market, which is largely limiting availability of their stocks, which are regardless oozing out through secondary markets. So as soon as Facebook or a few smaller tech companies go public, or if the SEC laxes the rules for investing private companies (as discussed previously: http://berislav.lopac.net/post/4489527749/opening-the-valve), the bubble will start to inflate.

> To have a bubble

Did you read the article? Did you read the headline? Go, reread the headline. Realize that blubble is not a typo. Now, go read the article. =)

Your point being? I was commenting generally on the idea of the bubble, not the article.

Michael's main points are that

1.) Less money invested now than 2001.

2.) Low burnrate.

Therefore it's not a bubble.

1.) Sure, there is less money invested now. However, the market cap (and possible return for the investors) is also smaller. Remember that at the height of dot com in 1999, nasdaq had a market cap of 6.6 trillion. The bubble crash wiped out $5 trillion in the market value of the technology companies. The current market cap for nasdaq is $3.1 trillion, and if adjusted for inflation, is 2.3 trillion. (using government inflation data. if you were to use realistic inflation data, it would probably be way less than that) So we have less money invested, sure. But it's because there is less return possible.

2.) Low burnrate has nothing to do with overvaluation of companies. If a company's potential exit is realistically X, and investors miscalculated and invested an amount that valuates the company at 5X, and the ceo choose to burn that investment over 16 months instead of 5, the investor is still gonna lose the 4X over time.

And because the US economy is alot worse than 2001, (check government debt level, unemployment rate, labor participation rate, average personal savings rate, average retirement savings size, food/gas inflation) when the hangover comes, the tech industry is gonna have a massive headache. Lots of layoffs, startups shuttering, investors losing 90% of their investment, etc.

So the question you have to ask, and only ask is, will the company ever realistically achieve that valuation, regardless of burnrate, regardless of past performance, in the current and future macroeconomic conditions. For companies like Facebook at $70 billion, Twitter at $11 billion, Groupon at $6 billion, etc.

2.) Low burnrate.

Not quite, he's talking about a particular mentality in that the goal was to blow as much money as possible and get enough revenue to IPO, at which point early investors cash out, profiting off public investment in something worthless.

2.) Low burnrate has nothing to do with overvaluation of companies.

But overvaluation of individual companies does not mean there is a bubble, either. It just means a company is overvalued. In the case of startups, "a Bull Market for private investors" is a lot more accurate than "Bubble" but a lot less sensational and scary because bulls don't pop they just turn into bears.

As an individual investor, yes. But generally speaking the reason it's worth asking whether there is a bubble (and not just whether a particular company is overvalued) is because oversight and regulation can be effective at preventing the sort of stock market abuse that led to the two recent crashes. Overvaluation in general, though, is simply one of the risks of investment.

"Heck, even I’m concerned when I see companies like SecondMarket holding public auctions for Facebook stock, driving the price ever higher..."

Ah, nice a cleverly rephrased 'blame the speculators' argument, ignoring the fact that all stocks are speculative in nature. Also, the Pets.com reference felt lazy.

I'm really noticing a pattern with TC articles and a feedback loop on HN, they basically just milk a subject until the comments die down and then once the comments begin to show a new popular consensus they're quick to hop on that. Reminds me a lot of Fox News. He barely even covers the topic his headline implies the article is about--whether we are, or aren't, in a bubble currently.

The article is mostly about himself. Funny when a journalists favorite subject is himself.

Ah, that explains it. I had just assumed it was a blog post, but it was actually supposed to be journalism. Through that lens, what you say makes perfect sense.

I think you're being a bit unfair here. He did reference himself quite a bit, but it was relevant -- he was talking from experience about the last bubble. There's a lot of talk about a bubble and he made some good points about how if we are in a bubble, it's not the same bubble as last time.

Just because Arrington wrote it doesn't mean that it is wrong.

If it weren't such an ongoing pattern I'd agree with you, but MA inserts himself into the subject of every topic he covers. He's the Glen Beck of tech bloggers.

I agree. We're not in a "bubble". We're in a half-decent spell after a lost decade.

1998: The internet is going to generate a lot of value. Everyone sees this, but no one knows which ventures will succeed and which will fail. People who really don't know what they're doing get involved and it gets frothy. The '90s had people who didn't understand business trying to start and run them, and people who didn't know a thing about technology trying to get in the game.

2011: Recovery, making up for lost time. There's a decent amount of enthusiasm, but it's only "hot" in the same way that a 70-degree day in March is "hot" compared to what came before it.

When intellectual lightweights who only know how to draw 2-by-2 matrices start getting into technology, then run-- and by "run" I mean pull out your money, but stay in tech if you're smart, because even in the doldrums when no one is getting rich this is still the best industry to work in. We're not seeing any of that yet, though. Mark Zuckerberg may be a mediocre coder by HN standards, but he's not an intellectual lightweight at all. No bubble yet.

> Mark Zuckerberg may be a mediocre coder by HN standards,

Don't mean to pick on this one comment, but he is certainly not a "mediocre coder by HN standards". There may be a few people at Facebook who are better at raw engineering, but in terms of the full stack (energy, focus, originality, ability) Zuckerberg is one of the best.

Reading about Haskell != building Facebook.

This is a good point, and being a great businessman is different from being a great engineer, and Zuckerberg is clearly the former (at least, and with the talent to be the latter). If you're a great businessman, you'll hire people who are, technically speaking, better than you are. If you're the best person at your company, that's a sign that you're doing something wrong.

Zuckerberg also never had time to become a great programmer, since Facebook took off when he was 21-22. So he may have been, at that point, a "mediocre" coder by 35-year-old standards, but he was excellent compared to his age. If his coding skills haven't improved, that's because he was doing something else.

He also seems to be improving himself, which is rare for business executives. Often when people have that kind of success at a young age, they remain young and arrogant forever. He doesn't seem to have done that, and my opinion of him has definitely improved in recent years.

I'd use 'upswing'

...instead of 'bubble'

Patterns of the share market...

Step 1: create fear through speculation

Step 2: investors get cold feet from step 1

Step 3: the tech sector suffers again

The title may as well have read, "I'm desperate for readership"

Indeed. Even as I clicked on the article I knew I was likely going to regret giving them the traffic. TC has been off my radar for a long time, but I assumed a HN frontpage story might be worth reading. Not so.

Why so? Explaining why would be more interesting than baseless snark. The OP seems to me like a very good analysis of a topic on a lot of people's minds lately.

Because, clever wordplay aside, "There is/isn't a bubble in technology" articles generally attract readers despite the fact they rarely contain substance. There was nothing in that article I didn't already know / have banged over my head by every other fluffy tech blog that exists today.

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