Why the Tech Boom Has Not Yet Entered Bubble-land

There seems to be a theory going around that the current tech boom has entered into bubble territory. In a piece entitled “Is the dot com bubble about to burst?”, one journalist wrote:

Sometimes, when a love affair ends, you can’t remember what it was you ever saw in someone in the first place. That is the feeling right now of a lot of once-amorous investors who breathlessly wooed Facebook at its flotation in May and paid $38 for the privilege of a share in the social network.

And certainly some other tech stocks have been disappointing to investors, including Zynga and Pandora. Indeed, some skeptical  spirits have pointed to the surge in the venture capital investments as a sign that the top is here.

But let’s be serious. While the tech boom will likely enter Bubble-land eventually, we are nowhere near that point. I will offer three reasons. First, as long as the big telecom companies are still pouring billions into extending the capabilities of their  high speed mobile networks,  there will be new apps to develop and new companies to start.  Indeed, we have not yet seen an iPhone with 4G connections.

The second reason has to do with the evolution of bubbles. Journalists and investors start using the word ‘bubble’ to describe booms when the booms still have years yet to run. I remember (though maybe nobody else does) that Fortune wrote a cover story in 2004 called “Is the Housing Boom Over?”  The story said:

The housing market is rapidly losing touch with reality. Fueled by interest rates that have remained near record lows, prices have continued to soar, and the gap between home values and the underlying fundamentals such as personal income and job growth is greater than ever.

Of course, we know now that the boom in housing continued for years after this foresighted article. (Plenty of other publications were “too early” to the housing bubble story, including BusinessWeek in 2005).  Similarly, the odds are that the tech boom is far from over.

Finally,  we’ve learned a very simple lesson from the events of the past fifteen years. The tech boom and bust of the 1990s, no matter how frothy it felt at the time, created far more value  than the housing/debt boom and bust of the 2000s. In retrospect, a tech-driven bubble feels more like a balloon–a bit fragile, but able to lift the economy a long way before coming back to earth.

Comments

  1. The tech boom and bust of the 1990s, no matter how frothy it felt at the time, created far more value than the housing/debt boom and bust of the 2000s. In retrospect, a tech-driven bubble feels more like a balloon–a bit fragile, but able to lift the economy a long way before coming back to earth.

    That type of thing has happened even before the tech industry. The Panic of 1893 sent a ton of railroads into bankruptcy . . . but it also left us with an extensive network of railroads.

Trackbacks

  1. […] Note: This item is cross-posted from Innovation and Growth Tagged Communications, Innovation, Telecom, The Data-Driven […]

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