We didn't start the Fire (2.0)
youtube.com
youtube.com
Facebook and a dozen imitators going public with their stock prices subsequently soaring out of control as people rush to get in on the action, that would be cause for alarm.
Time Magazine covers are the wrong place to look for bubble clues.
but the one thing these companies are not doing?? "ooh, shiny startup! here's ten million dollars!"
And doesn't offer honors.
Actually, the thing that I absolutely adore is that MIT doesn't do "honorary" degrees. You earn it.
I don't feel like my degree is somehow cheapened because my university gives honorary degrees to people who didn't "earn it".
MIT was started as a reaction to other universities whose graduates couldn't do anything "useful." (That is William Barton's word, not mine.) At that time, supposedly prestigious colleges were accepting and graduating rich and powerful students who could talk the talk, but couldn't make any real contributions when it came to math, economics, physics, or any other hard science or engineering discipline.
So, MIT was founded to be a utopia of meritocracy where no one cared where you were from or who your father is, all anyone wanted to know is "can you do the work?" Furthermore, MIT was founded on the principle that if you've graduated from MIT, you are guaranteed to be capable of useful contributions to society. This was considered to be a binary question -- either you're an MIT graduate or you aren't. That's why honor rolls are anathema to the Institute.
At the end of the day, this means that honorary degrees, athletic scholarships, and status-based admissions were out from the beginning because they are diametrically opposed to the mission of the Institute. What was (and is) in? Rigorous math, physics, chemistry, biology for every single graduate, no matter if they are mechanical engineers or music majors.
At $34k a year? The key word is 'founded' I guess.
The need-blind admission has been going on forever and the commitment to meet 100% of financial need has been going on for a long time, though I can only say with certainty that it's been in play since 1998 (when I first started looking seriously at the MIT admissions materials).
The good news is that a lot of other "elite" schools are doing this now too. If anyone here knows a smart kid with an expensive dream school, definitely advise them to apply now and worry about the money later.
I believe the song said "honor roll", not "honorary". MIT does not have an honor roll.
IIRC it has given out one honorary degree, to Winston Churchill.
MIT has never given an honorary degree. This tradition is so deeply rooted in the Institute's culture that I would bet a year's salary that it won't ever happen.
MIT has allowed certain people to serve as "honorary lecturers." That's what Winston Churchill did.
And while it took literally few months of good acquisitions to create this Web 2.0 hype, much much faster than any fundamental changes arrived, few bankrupctes should be enough to kill it.
Of course, there's still a question what has changed fundamentally since the last bubble? The infrastructure costs nearly nothing, the ad budgets are way higher, as well as number of people using the Internet. However, the services are still rather poor, and nothing paradigm shifting.
(My boss is your CS professor...)
Enrollment into CS programs dropped dramatically when the bubble burst, and has remained low to this day, even though the market recovered in only a couple of years after the crash. It's a matter of inertia, really: it takes a few years for people's perception of the job market to adjust and 4 more years to graduate.
"The correct answer is, The Moops."
What we see now may be some misguided investments, bad companies, etc. Obviously, all the crap will end up being cleared at some point. But it's not necessarily a bubble.
Are you really trying to say that Apple is over-valued?
The stock market bubble (1.0) was based largely on over-valuation of companies that had no profits and no proven business model.
All of the companies you list -- perhaps save for Sun, is it profitable? -- are doing quite well, thank you. Whether they deserve their P/E ratios at the moment: that remains to be seen. But this does not compare with the massive number of over-valuated companies circa 2000. The NASDAQ, for example, sits today at about $2600 -- at the peak of the bubble, in mid-2000, it broke above $5000.
We are not in a bubble of any kind.
Just because it doesn't match the hysterics exhibited back in the 90's doesn't disqualify this. And it seems your only argument has been that. I also found your analysis of dot-com companies back then to be lacking.
Personally I don't think it really matters, there are way more important economic issues that needs to be addressed, be it the real estate bubble, credit meltdown, or the war America is engaged in.
Also, for what it's worth: http://online.wsj.com/public/article/SB116679843912957776-fF...
And PS: I own Apple stock. And yes, it is greatly overvalued. And I love it.
We're debating what this all means.
"this is an economic bubble as defined by the mere fact that companies are being valued (privately or publicly) too high"
When you say "bubble" you strongly suggest the current situation somehow compares to what happened in 2000. It doesn't compare.
Yes, this is my only argument. The rest -- that it doesn't matter very much if Facebook goes under -- is obvious enough that I'm not bothering to mention it much. A bubble burst, to most of us, means disaster based on foolishness. There really isn't very much foolishness going on right now.
In this case, the video uses the term bubble specifically as it was used to describe the tech bubble in the late 90s. The video offers a number of cues to suggest this is the intended meaning of the word.
There will always be overvaluations and undervaluations in the stock market. That's the nature of investment risk. What's missing here is a widespread pattern. This is like worrying that Xerox was overvalued for their Palo Alto Research lab-- a valid concern for Xerox stockholders maybe, but no concern at all for the rest of the world.
If anything, bootstrapping something similar nowadays and being successful at it would make you look like a genius (a la woot).
What they did fail to do was exercise discretion with their spending. The strategy back in the dot com days was to over-spend in order for the marketing to tip them over. That was the strategy for Amazon from DAY 1 and it took them almost 10 years to make a profit. But Amazon survived because of good leadership while Pets.com obviously didn't because of bad leadership.
And as for Facebook, gee, a supposed 15 billion dollar valuation? Advertising models that's outright creepy? That's growth?
The first bubble was a catastrophe because it involved public money. The second bubble is going to be a headache because it involves private money. But nonetheless when the value of something is way more than the intrinsic value, it's a bubble.
I beg to differ. A legit business model would include a base of customers who wanted to buy the products from the company -- something Pets never had luck with.
"What they did fail to do was exercise discretion with their spending."
That was one of their failures, but not their biggest. The biggest was not having demand, and being unable to create demand. It was easier for people to go to the grocery store once per month than to order online. Comparing Pets to Amazon isn't really valid, since Amazon meant to a seller of everything, and even when they were solely selling books, there was more value-add than Pets could ever achieve. You can shop for books on Amazon in more interesting ways than you can at a physical bookstore. That wasn't true for Pets.com.
"And as for Facebook, gee, a supposed 15 billion dollar valuation? Advertising models that's outright creepy? That's growth?"
$15 billion sounds ridiculous, sure, and it probably is. But that doesn't make a tech bubble. That's just over-valuation. Facebook isn't a public company, and if it went under, a handful of investors would lose money. Not the same as the NASDAQ going from $5000 to <$2000.
Based on that, the entirety of Web 2.0 should be an automatic bubble.
"That was one of their failures, but not their biggest. The biggest was not having demand, and being unable to create demand. It was easier for people to go to the grocery store once per month than to order online. Comparing Pets to Amazon isn't really valid, since Amazon meant to a seller of everything, and even when they were solely selling books, there was more value-add than Pets could ever achieve. You can shop for books on Amazon in more interesting ways than you can at a physical bookstore. That wasn't true for Pets.com."
Wow, you don't get it.
The "demand" wasn't there because the majority of people didn't have internet, weren't comfortable with ecommerce, and didn't want to give out credit cards. To survive in that sort of environment most companies relied on massive marketing push. Well, vulture funds gave them plenty of cash to burn, what were they going to do? Invest it in a CD?
They had as much of a legitimate business model as Amazon, their failure was the wanton spending and the inability to sustain their company. But the idea is sustainable, online pet supplies brings up 1.7 million entries on Google. Just because one company failed does not invalidate the market.
Amazon back then had a value add? What was that? Selling books for a loss?
And an economic bubble is defined as when assumed value is more so than intrinsic value. Read techcrunch for more than a month and you'll find plenty of investments or exits for extraordinarily pricing.
Pets.com was based on selling physical products. Most Web 2.0 companies aren't, but a lot of them are profitable or break-even.
"The "demand" wasn't there because the majority of people didn't have internet"
Maybe. But if your value proposition is "we sell pet food online" you have a larger problem.
"vulture funds gave them plenty of cash to burn, what were they going to do? Invest it in a CD?"
Perhaps spend it working on expanding their market base beyond pet products. Amazon did that, as an example. Alternately, don't take the money.
"Amazon back then had a value add? What was that? Selling books for a loss?"
Things like reader reviews and instantly available critical reviews, suggestions of other books, wish lists -- not to mention the ability to browse titles without having to leave my house. You can't (easily) do any of that in a physical bookstore. And it's why a lot of people started going there.
"And an economic bubble is defined as when assumed value is more so than intrinsic value. Read techcrunch for more than a month and you'll find plenty of investments or exits for extraordinarily pricing."
Defined by you, perhaps. I prefer the way Goladus described it: "Large, risky investments based primarily on the logic that values are surging and will keep surging fueled the inflated valuations."
Regardless of exact definition, a bubble that involves relatively small amounts of private money is not the same as a bubble made of large amounts of public money.
Amazon barely made it through those bleak years. There was a lot of luck involved in their survival. Their business model of "a store for everything" wasn't much better than pets.com that's for sure.
It's improperly termed "A bubble" and every time someone calls it that, it will only make the particular headache worse. When people lose money on bad ideas, that'll hurt, but it'll happen on an individual basis. Calling Facebook's valuation a bubble is like Chicken Little saying the sky is falling. If enough people really start believing Chicken Little, there will be problems; but the sky isn't going to fall.
Pets.com failed because they figured they needed to be a huge company before they turned a profit, as was the fashion. If you launched a similar service today, you'd probably have a great little niche business.
Advertising space to advertisers who want to reach thousands of dedicated Facebook surfers, most of whom are demographically appealing to those with things to sell.
Given that most ads are clicked by new or casual site visitors, and that facebook basically destroys this notion by forcing login, they are certainly not a success - yet.