Very recently I had a long chat with a fellow tweeter on the subject of technology bubbles, and whether we are entering a new one or not. This subject has received a lot of press coverage recently but I wanted to share with you my thoughts and what I believe to be the three key indicators that we are entering, or are already in, a technology bubble.
Lack of a single pervading paradigm
What do I mean by this? For many, many years Microsoft was the incumbent technology in the vast majority of organisations, and to be honest their competitors were seen as specialist, it was Microsoft, Java or Open Source. What we have started seeing over the last two years is the emergence of two new competitors Apple and Google.
Here is where the sense of confusion begins as most people are learning more than one paradigm right now, as no one knows which will pervade. Both of course offer new ways for people to collaborate the main difference being that Apple works with all documents via a central hub, iTunes, of course Microsoft are not ready to accept defeat and so are launching some innovations around their Live offerings and acquisition of Skype.
This has all lead us to a situation where we see three competing paradigms around the basics. This was unheard of 4 or 5 years ago everyone simply used excel or word and maybe Hotmail or gmail to send personal mails, you wouldn’t use Key Note for PowerPoint similarly you wouldn’t use Open Office for spreadsheets etc.
Everyone is exposed to this break from one paradigm in the basic software they use everyday such as word processing and spreadsheets, messaging, emailing and so on. With Apple and Google users can choose to utilise one paradigm for one medium and another for another, such as Apple on their phone and Google on their tablet.
Therefore we are starting to see multiple dominant paradigms in the market with everyone easily swapping between them. There is no longer one standard way of doing things. This confusion in the market for me is reminiscent of the confusion which existed around ecommerce standards during the dot com bubble and is the first key indicator of a technical bubble. No one knows which way the market will go and what will happen in two years time.
Regular readers will know I participate in a lot of events and talk to a lot of CTO and CIOS, at the same time I see a lot of vendors pitching. One of the overriding things I have noted at the events, I attended this year, is that, it seems, every technology company wants to attach the word cloud or mobile to themselves as a sales tool.
This in turn creates market hype and confusion. There is undoubtedly a shift from on premise to out of premise via cloud and mobile however, when I see a company that does hosting providing the end user technology via terminal server calling themselves a cloud company and people actually believe that, it tells me there is hype in the market as terminal server is the polar opposite of cloud technology.
With mobile I see companies with the ability to work on HTML claiming they are multi platform which simply isn’t true. People are trading on semantics and jumping on the band wagon they cannot support cameras, they cannot support GPS. This in turn means companies cannot see through the mire to what needs to be done and provides to me the perfect environment for a bubble to develop.
Startups- For me this may be the key indicator that we are immersed in a tech bubble when we look at how much money right now is going into IPOs and investment you can see a lot of Venture Capitalists investing in small companies irrespective of their offering.
Take for instance the Start Fund, backed by Yuri Milner, which recently offered to a blanket investment to every Y Combinator startup in the most recent batch, some 40 start ups.
Back in September Intel Capital Managing Director for Asia Pacific Suresh Kumar Kuppam noted “valuations of local tech start-ups have reached a ‘bubble level’ due to too much capital chasing too few quality opportunities”.
Scramble for patents- Coupled with this we see a lot of companies buying up patents, the FT have gone so far as to christen this ‘the Great Patent Bubble of 2011’ “Extracting value from patent holdings is becoming a game of chicken in which the stakes have been rising fast”. this may have been the driver behind Google’s purchase of Motorola.
The exit market- Exits obviously happen all the time in the world of business however it is key to begin to note what the big players are investing in and what they are exiting from. If I look at the market recently I really see a big drive in investment toward any company which has pinned its hat on with a cloud or mobile moniker. The New York Times recently claimed people are “Investing Like its 1999”.
This all leads me to conclude that this model is not sustainable and that we are thus on our way to a bubble.
Why is this important? If you are looking into a cloud or mobile vendor right now to stay ahead of the competition, to avoid the pitfalls of the dot com burst we need to go back to fundamentals. By this I mean look at key indicators around the supplier such as global coverage, heritage, what the company has already been doing and what is the roadmap for the future, how do they understand the technology.
All of this enables companies to jump on board the wrong wagon. Similarly if you are an investor looking to invest a bubble can be a great thing and can make you a lot of money but it can also blow up in your face. I advise looking into the same analysis taking into account how solid a company is, what their debt to revenue ratio is, what their p/e ratio is.
Don’t just value a company’s propositions on what could be done, as we already know that doesn’t really hold water. Value things from a tangible point of view, don’t be afraid to ask can I see a demo? Is there a dividend strategy? We would all like to benefit from the bubble but you need to make sure not to lose yourself inside the whirlpool.