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Tuesday, June 14, 2011

Top 4 Things That Could Be Leading us to Another Tech Bubble Bursting

Here we go again.  Don’t we ever learn from our huge mistakes from our past challenges in the technology space and finance industry?   I guess not.  Below are our top 4 reasons why we might be on the brink of another tech bubble, that could drive our fragile economy even further downstream.  Do we really have to be so friggin greedy!

4) Our society of convenience is leading to an imbalanced focused on technology innovation, good or bad.  As I’ve said in past articles, in our ADD culture we need and want things here and now or we move on.  We don’t wait for information anymore, even if in means texting while behind the wheels of our cars, having access to Wi-Fi while sitting on a 2-hour plane ride from city to city, reading the latest book release on our Kindles before the hardcover is on the bookshelves at Barnes and Noble, or watching that night’s Bachelorette on our iPad 2 trying to get home to the suburbs after a 10-hour day at the office (instead of DVR’ing it and watching it at a later time).  This has led to a huge influx of investment targeted to research and development from both companies in the private sector and from the government to help satiate our needs for immediacy in how we live our lives.  This spotlight on technology being the end all be all for our culture to continue to survive has resulted in spotty innovation at times, less focus on education investment (which has caused and is causing a frightening drought of talented scientists and engineers) and an overall feeling that if we don’t somehow get in on the tech craze then we’ll never have any real success.

3) The number of technology IPO's in 2010 made up a significantly larger percentage of the total amount than it did in the last tech boom.  Not only do we have a lover affair with technology, but again we are so tech dependent in all aspects of our lives these days that we really can’t escape the phenomenon.  Going hand in hand with this relationship is the fact that those small start-up entrepreneurial companies that are so passionately focused on making the ultimate BIG score in business, have found that if they have a strong technology bent to their offerings then news travels quickly across the Wall Street wires and give them a significant leg up against their competitors in other non-tech industries.  This has recently resulted in both investor interest and confidence some of which we haven’t really seen since the blow up we experienced before 9/11 hit.  Why we haven’t learned from the past is really beyond my comprehension, but like Gordon Gekko said in the movie Wall Street “Greed is Good”.

2) Foreign company investments are also a lot higher than they were in the last tech bubble.  Not only are we interested in investing in technology companies based here in the United States, but since we continually salivate for all things tech we are now open to opportunities for company investments that have their headquarters located in countries outside of our country.  Case in point: Yandex.  You probably have never even heard of this company.  But the Russian search engine recently raised eyebrows by scooping up $1.3 BILLION in funding from its NASDAQ public offering.  This staggering amount for a very little known company outside of the U.S. should cause us to pause for a moment and think about what represents.  It is a microcosm of what we are all guilty of:  speculation in an industry that we really don’t understand but are so amorous of due to the windfall of stash that could result. 

1) Overvaluing everything and anything that feeds our need for community.  Facebook, Twitter and LinkedIn are the prime examples of this.  Social media is now all encompassing, and every major business on the planet is putting together teams (including hiring a Social Media Manager formerly called Community Manager) and strategies to fill this void in their overall marketing/promotions, public relations and sales efforts.  And because of this hurried focused on this area and seemingly over importance on it, valuations put on the companies that are leading the way are skyrocketing and resulting in multi-billions of dollars in net worth (on paper at least) for some of the CEO’s of these trailblazing technology pioneers.  I believe at last count Facebook has been valued at over $50 Billion and possibly as high as $75 Billion with its wunderkind 26-year old co-founder Mark Zuckerberg having a net worth today of $13.5 Billion.  And Facebook is just one of the many tech companies out there with inflated valuations that could be leading us down a very dangerous and all too familiar path.  Skype’s acquisition at the hands of Microsoft is a strong example of a high growth emerging company that wet the appetites of one of the tech majors who most experts say paid more than twice than it should have paid ($8.5 Billion at the end of the day).  It sounds a lot like 1999 all over again doesn’t it?!! 

Again, we should have learned our lesson after we busted a nut back in the 90’s when Ebay, Amazon, Yahoo, Google, eToys (oh yeah they never made it) and a host of other companies were going to make us fabulously wealth.  At least back then our economy was thriving and our unemployment rate was at a respectable level.  With our extremely challenged marketplace today and unemployment north of 9% STILL, who knows how we’d be able to handle a tech crash with the recession still lingering in our minds.  It’s time to focus on other things more important than just the hottest new technology gadget and falling in love with the company that creates it.  We have a lot more important things to invest our hard earned tax dollars in.  True and lasting innovation may actually be a result.

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