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The proper question is not "are we in a tech bubble?", but "where are we on the timeline of the bubble?" How long before it pops?
The proper question is not "are we in a tech bubble?", but "where are we on the timeline of the bubble?" How long before it pops?
This in itself, by the way, is the question on which bubbles grow. If you believe the bubble will continue to inflate, then you should jump in and thus become part of what makes the bubble balloon – assuming, obviously, that you will be able to get out before it is too late. And remember, many people do, profitably, get out.
This in itself, by the way, is the question on which bubbles grow. If you believe the bubble will continue to inflate, then you should jump in and thus become part of what makes the bubble balloon – assuming, obviously, that you will be able to get out before it is too late. And remember, many people do, profitably, get out.
The Facebook IPO indicates that yes, we are in a bubble; and no, it is not in danger of exploding anytime soon. Indeed, the Facebook IPO – by, in effect, printing a $100bn in new, spendable, money – further inflates this bubble. Investors investors have spent some $16bn in cash on Facebook shares, valuing them at $104bn, a part of which Facebook will now spend on other companies, which will increase their value, as well as the value of all other like-minded companies. Without creating any real value, that $16bn could, in the next year, plausibly expand to a trillion.
The Facebook IPO indicates that yes, we are in a bubble; and no, it is not in danger of exploding anytime soon. Indeed, the Facebook IPO – by, in effect, printing a $100bn in new, spendable, money – further inflates this bubble. Investors investors have spent some $16bn in cash on Facebook shares, valuing them at $104bn, a part of which Facebook will now spend on other companies, which will increase their value, as well as the value of all other like-minded companies. Without creating any real value, that $16bn could, in the next year, plausibly expand to a trillion.
In a sense, to speak briefly in praise of bubbles, this is good news. Important aspects of the world will be remade between now and when the bubble bursts. The bubble will finance lots of innovation, lots of long-term ideas that are not economically viable in the short term, and lots of personal reinvention. The last bubble, the three- or four-year (depending on where you date it from) of madcap euphoria that collapsed in 2001, financed the R&D of the industry that developed since that crash.
In a sense, to speak briefly in praise of bubbles, this is good news. Important aspects of the world will be remade between now and when the bubble bursts. The bubble will finance lots of innovation, lots of long-term ideas that are not economically viable in the short term, and lots of personal reinvention. The last bubble, the three- or four-year (depending on where you date it from) of madcap euphoria that collapsed in 2001, financed the R&D of the industry that developed since that crash.
One of the reasonable arguments against bubbles is that crashes also delay development that might otherwise happen in a more systematic and orderly fashion. The other argument is that they distort reality: that they not only make the markets go crazy, they make people go crazy, too.
One of the reasonable arguments against bubbles is that crashes also delay development that might otherwise happen in a more systematic and orderly fashion. The other argument is that they distort reality: that they not only make the markets go crazy, they make people go crazy, too.
It's a kind of psychic havoc. People begin to live in fantasy world. An enormous amount of economic and emotional activity occurs outside the structure of cause an effect. When the bubble bursts, not only does all this illusory economic activity disappear, but the souls of the people performing this activity die a little, too.
It's a kind of psychic havoc. People begin to live in fantasy world. An enormous amount of economic and emotional activity occurs outside the structure of cause an effect. When the bubble bursts, not only does all this illusory economic activity disappear, but the souls of the people performing this activity die a little, too.
Still, a bubble is the physiological and economic circumstance that makes people invest themselves and their money in the unlikely and even the impossible – that is, the speculative. Without a bubble, normally fearful and ambivalent people stay home.
Still, a bubble is the physiological and economic circumstance that makes people invest themselves and their money in the unlikely and even the impossible – that is, the speculative. Without a bubble, normally fearful and ambivalent people stay home.
Facebook now derives 80% of its revenue from advertising, but the ultimate upshot of the rationalizations that have attended the $100bn-plus IPO valuation, is that while Facebook can't sustain its growth metric on advertising alone (indeed, its advertising, as a per user value, is shrinking), it will surely think of something else. That is, if anyone will, Facebook will. Won't it?
Facebook now derives 80% of its revenue from advertising, but the ultimate upshot of the rationalizations that have attended the $100bn-plus IPO valuation, is that while Facebook can't sustain its growth metric on advertising alone (indeed, its advertising, as a per user value, is shrinking), it will surely think of something else. That is, if anyone will, Facebook will. Won't it?
That something else will involve … well, innovation, new models, evolving behaviors, and, of course, the ability to spend $100bn to get what it wants.
That something else will involve … well, innovation, new models, evolving behaviors, and, of course, the ability to spend $100bn to get what it wants.
So, while a bubble distorts and delays reality, it doesn't change it. You only have so much time to prove yourself. And that's the point: it is easy to see the beginning of a bubble, which is why everyone is seeing it now, but hard to see the end.
So, while a bubble distorts and delays reality, it doesn't change it. You only have so much time to prove yourself. And that's the point: it is easy to see the beginning of a bubble, which is why everyone is seeing it now, but hard to see the end.
One scenario has it that while Facebook races madly toward some proof of its proposition that it can be worth what people are now betting it will be worth (in itself, obviously, a fearful distortion of cause and effect), it will necessarily keep undercutting its own ad prices to keep revenues rising, therefore depressing the rest of the industry. While Facebook itself reported a sharp fall in its own CPMs (cost-per-thousand pages views) in the first quarter of 2012, so have other large, mass traffic sites – by as much as 25%.
One scenario has it that while Facebook races madly toward some proof of its proposition that it can be worth what people are now betting it will be worth (in itself, obviously, a fearful distortion of cause and effect), it will necessarily keep undercutting its own ad prices to keep revenues rising, therefore depressing the rest of the industry. While Facebook itself reported a sharp fall in its own CPMs (cost-per-thousand pages views) in the first quarter of 2012, so have other large, mass traffic sites – by as much as 25%.
So yes, the collapse is beginning even as the bubble is filling.
So yes, the collapse is beginning even as the bubble is filling.
Some of us call this fun.
Some of us call this fun.
Comments
45 comments, displaying first
18 May 2012 4:32PM
Praise for the madness of towering peaks and deep slumps caused by the crazy neoliberal freemarkets we have had foisted upon us in the Guardian? Good grief. I blame Margaret Thatcher and George Osborne.
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18 May 2012 4:39PM
Reminds me a little of 'Tulip Mania' -At the peak of tulip mania, in February 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman.........At least tulips look pretty.
http://en.wikipedia.org/wiki/Tulip_mania
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18 May 2012 4:45PM
the problem is that bubbles are notoriously hard to identify before they actually explode.
when Google had its IPO in 2004, many voices were raising the exact same arguments as they are now.. How can a mere search engine be worth so much money? from a NYT article in 2004:
After a series of missteps, Google finally pulled off its much-hyped initial public offering yesterday. The good news about this unusual I.P.O., which sought to deprive Wall Street banks of full control over the sale, is that it made it easier for individual investors to buy the stock. Of course, that may also be the bad news. At its closing price of just above $100 yesterday, Google is valued at a bubbly $27 billion.
Google is now worth six times more than what it was worth then....the pundits were wrong. I'm not saying that Facebook is not a bubble, I'm just saying that bubbles are very hard to identify.
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18 May 2012 4:52PM
Right, I'm done with this crap. Deleting the account. Nobody needs Facebook anyway.
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18 May 2012 5:13PM
All true. But neither you - nor anyone else - knows when this bubble will burst.
Meanwhile, lots of people will become very wealthy. Lots will make a reasonable return on investment and some - again, no one knows when - will lose their shirts.
Such is the way of the world.
(For the record: I don't like or use facebook or twitter or other silly fads. But then, perhaps such prejudices explain why I'll never be rich).
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18 May 2012 5:22PM
As long as they use a reputable bank such as JP Morgan for the IPO there is no problem.
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18 May 2012 5:27PM
It will burst when a younger generation find it terrifically uncool to tell everyone (including employers and head teachers) all your most personal and intimate details and when delusional bragging goes out of fashion.
Till then there will be millions of 'tw*ts' twittering, tweeting and giving banal status updates.
It could still take quite some time!
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18 May 2012 5:28PM
Facebook must be one of the stupidest investments one could imagine, yet they all jump in blinded by greed which seems to render them completely senseless.
How much will this wipe off the value of pensions?
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18 May 2012 5:32PM
Old farts like myself use Google every day, and as I'm building my own house at the moment, it's nothing unusual for me to buy several hundred pounds worth of goods through that site every week.
Facebook I use not, and I suspect that people who do, take far less notice of any advertising. I see that the IPO of $38 went up to $43 and is now down to $38. In a weeks time I'd be amazed if it weren't below $30.
Fools and their money..............
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18 May 2012 5:37PM
I'm not saying that Facebook is not a bubble, I'm just saying that bubbles are very hard to identify.
And Facebook isn't typical. Like Google, it has got something very right and has no real competitors. It could more like selling off a monopoly, like the British gas floatation, than simply gambling on the latest craze, which it patently isn't. When Apple first floated it was an effete, elitist overpriced product doomed to extinction, according many who didn't buy shares at 1% of their current value.
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18 May 2012 5:38PM
When FB aggressively tries to monetize itself, which it will have to do to justify this, it could drive away users in droves and that's when the bubble could pop.
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18 May 2012 5:41PM
The problem I find with facebook, as a user, is that the messages from my "friends" most of whom I have never heard of and have been forced on me by facebook, are of little or no interest. If I wish to send a message to someone I know I use an e mail. It must be good because facebook keep on sending me e mail messages to tell me I have "notifications pending" whatever these are. Can someone please explain the purpose of announcing private information to unknown "friends" . Of those I do know from my travels and with whom I agreed to become a "friend" I see messages they send to other friends in incomprehensible languages. To me facebook is pointless. I also find it hard to understand how a business that makes nothing, distributes nothing and sells nothing can be worth so much. I do not notice any ads either. However I wish Mr Zuckerberg mazeltov
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18 May 2012 5:41PM
What exactly is the value of Facebook, in concrete terms? How does one value html? Is it advertising? Is that really it?
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18 May 2012 5:44PM
A very good point, but unless facebook proves me wrong I don't think they have the brains that google does, google reinvented itself offering services and ideas well beyond its scope (google maps, Android, self driving cars, Chrome... They put a lot of money into funding out there ideas, i.e innovating) Facebook I think showed itself when it bought Instagram. They didn't invent something, they didn't lead the charge, they bought someone elses perceived success. Buying stuff rather than inventing stuff isn't generally as successful in the long term. I don't think Zuckerburg et al have even a quarter of the talent as a Page/Schmidt or a Jobs. I think their bubble will burst soon, people are already fed up with having their privacy walked on, so far the convenience of communication outweighs that, but once the run starts it will be over very quickly and they don't have any other products.
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18 May 2012 5:48PM
when Google had its IPO in 2004, many voices were raising the exact same arguments as they are now..
When Google had its IPO in 2004, investors wanted a return on their investment from the profits Google where making.
Facebook is not making a profit and it looks like the investors want their money back or as much as they can.
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18 May 2012 5:51PM
Is it advertising?
Pretty much, as with Google. Although Google is also looking to commercialise Android, to a greater extent.
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18 May 2012 6:05PM
Surely the difference between Google and Facebook is that, while they are both intrusive, Google is useful?
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18 May 2012 6:18PM
All credit to Mr. Zuckerberg and his colleagues for maximising the 'Greater Fool Theory' and transferring vast amounts of wealth from others pockets to theirs, moving it from weak to strong hands.
The essential question about Facbook is that no one really know the true value to advertisers. Advertisers cant even accurately quantify the true value of Google. There are all sorts of inflated metrics out there showing how Google is a very efficient way to acquire new customers, but no one really knows the true incrementatlity. It is possible that many customers could be acquired by other cheaper means. Many are not even truly new customers in the first place. And it certainly has little value outside that as a method of acquisition.
Marketers seem more than happy to pay vast sums of money to the likes of Google and facebook simply because they dont want to miss out, or they dont want to have to explain to senior managment why they are not spending the better part of their budget on the latest and greatest advertising method.
Anyway, I guess we will all know in the fullness of time....
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18 May 2012 6:20PM
A share price bubble does not finance R&D beyond an inflated IPO. Initial investors will pay a higher price if they think there'll be euphoric mugs they can sell to immediately after the initial offering but afterwards, share price means little to the issuing company.
Neither is the inflated IPO praiseworthy. Sooner or later, the bubble bursts and lots of people are left with shares less than what they paid for. Essentially, the extra R&D money ultimately comes at the expense of those who didn't pull out in time.
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18 May 2012 6:37PM
Would think the biggest plus is that the average grauniad is against it. The famously myopic poo poo the most obvious and deride any usefulness apart from turnips of course. Facebook has 700 million users which will grow in quality as old gits like me drop off. That is one hell of a lot of tv stations that fund the same way. Fb is already earning unlike the dotcom bubble, a subtle difference lost here. I wouldn't buy in but if it does drop far enough I will. The idea of a competitor is unreal. Any monopoly must have a worth, but at what value?
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18 May 2012 6:44PM
Have the ones who organised the IPO started to short FB now?
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18 May 2012 7:07PM
Facebook. A $100,000,000 market research wet dream.
Thats the value of FB..data for corporate advertising and marketing, a captive market in a closed system, that willingly gives out personal information for free.
All so advertisers can market more goods that the majority can't afford.
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18 May 2012 7:15PM
Faceache is not my bag Zuckerberg but good luck..........................you can buy Greece!
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18 May 2012 8:02PM
nationalise it now.
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18 May 2012 8:16PM
I know which I would rather have.The world has gone more crazy than even I could have anticipated thirty years ago.
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18 May 2012 9:29PM
We are in tech(South Sea) bubble. However device numbers connected to the internet 2bn now are projected to go to 10bn by 2020 thats x5. Smartphones, Tablets and Notebooks are productivty machines and may increase GNP productivity by 50-100%, thats the fundamental driving the silly prices. Facebook etc will get eaten up, buy your yacht now my boy.
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18 May 2012 9:45PM
Given a big power cut here and there....
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18 May 2012 10:06PM
The burst may be relatively soon - one, two years? Not the FB floatation but I've noticed small sites tagging on to the 'social web' that seem as daft as some the the crazier pre-social web sites before the original bubble went pop. Some don't seem to get where the money is - in profiling and ads.
With FB it depends on whether other big companies follow GM and dump them. If they do it will tank, if they don't it will survive while it remains popular. What next though? As a public company they are going to have to keep moving and that is harder. How near are they to saturation? As matteo80 says, Google use their money to innovate and diversity. In odd directions sometimes but many of their 'extras' are useful - mail, maps, books, Android, scholar. Whether FB will do so and how, we'll have to see.
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18 May 2012 10:25PM
"Facebook's IPO and the new tech bubble
There's no doubt the Facebook IPO is symptomatic of a new tech bubble. The only question is when will it burst"
Hasn't it burst already .... and the poor plebs caught up in the frenzy have no idea that the Facebook Business Model has yet to develop any semblance of sustainability.
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19 May 2012 4:19AM
FB has a fundamental problem which will lead to a relatively quick decline: it depends on the network effect to grow. However, the network effect also increases the amount of noise in the system. The more noise (i.e., irrelevant, irritating or intrusive posts from "friends") the less people will use it. I think two years and it will have lost its way.
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19 May 2012 5:42AM
Facebook is making a profit. It made $1 billion in profit last year.
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19 May 2012 10:41AM
I use FB all the time and have never clicked on an advert
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20 May 2012 2:15AM
Ok which finance clever clogs would like to explain to me how I can bet against facebook. I believe facebook is grossly overvalued, another myspace, a flimsy idea that can be easily copied and bettered (say by a company that doesn't violate privacy so much), another myspace, another dot.com business with a value far in excess of what it should be compared with profits and so forth, even now in what is probably its zenith.
Ok so first of all I can not invest in facebook. Second of all I can invest in things other than facebook. But essentially what I want to do is short facebook - what practical means of doing this for an individual investor are there? CFDs?
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20 May 2012 3:56PM
What kills internet-based companies? A non-internet based company buying it up.
What made AOL irrelevant? Old technology, old models, old assumptions about how and why people go on the internet and the services they require. Oh, and publishing "anonymised" search results online for everyone to see and trace to individual users.
When were these mistakes made? Under TimeWarner AOL.
What made Myspace irrelevant (except for a few indie bands)? Facebook and a desire among users not to give away their information directly to the Murdoch empire (although it might be argued that for them, indirect access was perfectly sufficient).
Let's see Facebook complete the triumvirate. "Goldman Sachs Facebook"?
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20 May 2012 5:05PM
Ok which finance clever clogs would like to explain to me how I can bet against facebook.
You could use either CFDs or a spread-betting account to short the stock. Financial gains made from spread-betting are free from UK Capital Gains Tax which is not the case for CFDs.
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20 May 2012 5:24PM
Fb is already earning unlike the dotcom bubble, a subtle difference lost here.
But not as much as it is spending? Earnings, profits, a none too subtle difference.
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20 May 2012 5:45PM
You could use either CFDs or a spread-betting account to short the stock. Financial gains made from spread-betting are free from UK Capital Gains Tax which is not the case for CFDs.
I know of a site that does the spread betting, but how would I go about using CFDs - which company or sort of company would I go to?
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20 May 2012 7:46PM
With respect, spread betting is really not something to get into if you're having to ask this kind of question. You can make big wins with it, but you can also lose a shitload of money. You have to know what you're doing - it's complex and arcane - and if you're planning to short a company, you really need to know that company and others in its sector to make educated bets. Shorting Facebook because you're not keen on it is a really bad idea.
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20 May 2012 8:19PM
Without creating any real value, that $16bn could, in the next year, plausibly expand to a trillion.
As I'm sure this sentence, without creating any real value, will plausibly expand to another couple of articles. Journalism like this is a bubble that never bursts. (I must go out more).
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20 May 2012 9:43PM
Yes I know, you're right and I don't plan to use any instruments I don't understand. I have used some very basic investment strategies in the past to pull off a 'short' in a roundabout way on currencies and countries. But I keep 80% to 90% of my cash in the bank. For something like this I would be talking about a small position, a couple of hundred quid, and only plan to use an instrument where the most I can lose is the stake. I would plan to study the options suggested for a while, it's not like I think Facebook will crash tomorrow. So I'm talking like a football bet just so I can say "ha ha I told you so" to the Facebook investors, but I don't want to take a position where I lose a fortune and they can say it to me instead!
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20 May 2012 10:38PM
The goods and services from Facebook, Microsoft, Pfizer, etc. express the tip of the iceberg of cumulative human study from countless people including folks like Newton, Galileo, Bohr, Archimedes, and Euclid; and more recently, from tax-funded public sector research(mostly military).
It’s fine for people like Gates and Zuckerberg to be compensated, but it’s preposterous for them to become billionaires with exclusive patents. Let their remuneration be proportional to the amount that they have added to the technological know-how embedded in their products.
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21 May 2012 12:18AM
With respect, spread betting is really not something to get into if you're having to ask this kind of question. You can make big wins with it, but you can also lose a shitload of money. You have to know what you're doing - it's complex and arcane - and if you're planning to short a company, you really need to know that company and others in its sector to make educated bets. Shorting Facebook because you're not keen on it is a really bad idea.
I'd also like to add that I pulled off a "short" on the housing market, as well as certain currencies, commodities etc. Desperately seeking validation here having shown my ignorance re CFDs, put options, spread betting and the like. I have never used CFDs or spread betting, I've just found other ways to sell high and buy low.
I didn't have any more information on housing, currencies or commodities than I do on facebook, just basic economics, following certain trusted economists (who I trust based on my understanding of economics) and they are pointing at the fundamentals of facebook being shaky, just as they did at dot coms first time round. I wasn't in on the game then at all unfortunately, but don't want to miss the second round.
So I am plenty confident in the economics, and confident of my hunches re the IT industry, its just the finance in the middle (a damn important bit of course) that I'm unsure, the mechanics of how to bet against facebook.
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21 May 2012 5:52AM
The computer age peaked with Championship Manager 2001/02.
It's been downhill ever since.
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21 May 2012 9:33AM
Many spread-betting companies, e.g., http://www.cityindex.co.uk/ http://www.igmarkets.co.uk/ also offer CFDs, but CFDs are also available from high-street names, e.g., https://www.barclaysstockbrokers.co.uk/ http://www.halifax.co.uk/sharedealing/.
As others on this thread have pointed out and as CFD providers will tell you themselves, CFDs carry risk and you could lose more than your initial investment. I would think very carefully before deciding to short a stock that is as difficult to value as Facebook appears to be.
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21 May 2012 11:44AM
Many spread-betting companies, e.g., http://www.cityindex.co.uk/ http://www.igmarkets.co.uk/ also offer CFDs, but CFDs are also available from high-street names, e.g., https://www.barclaysstockbrokers.co.uk/ http://www.halifax.co.uk/sharedealing/.
As others on this thread have pointed out and as CFD providers will tell you themselves, CFDs carry risk and you could lose more than your initial investment. I would think very carefully before deciding to short a stock that is as difficult to value as Facebook appears to be.
Thanks, I would stay away from CFDs then, I am not so confident about facebook, or probably anything else, that I would make such a bet. I want to make a one way bet like I do on football whereby if I'm right I win some money, if I'm wrong I lose my stake and no more.
From discussion on another thread perhaps a put option is the way to do this.
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More from Michael Wolff on media and modern life
An opinion-forming weekly column by Michael Wolff, acclaimed biographer of Rupert Murdoch and media observer. Follow him on Twitter @MichaelWolffNYC
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There's no doubt the Facebook IPO is symptomatic of a new tech bubble. The only question is when will it burst
• Guardian interactive graphic on Facebook shareholders' worth
The proper question is not "are we in a tech bubble?", but "where are we on the timeline of the bubble?" How long before it pops?
This in itself, by the way, is the question on which bubbles grow. If you believe the bubble will continue to inflate, then you should jump in and thus become part of what makes the bubble balloon – assuming, obviously, that you will be able to get out before it is too late. And remember, many people do, profitably, get out.
The Facebook IPO indicates that yes, we are in a bubble; and no, it is not in danger of exploding anytime soon. Indeed, the Facebook IPO – by, in effect, printing a $100bn in new, spendable, money – further inflates this bubble. Investors investors have spent some $16bn in cash on Facebook shares, valuing them at $104bn, a part of which Facebook will now spend on other companies, which will increase their value, as well as the value of all other like-minded companies. Without creating any real value, that $16bn could, in the next year, plausibly expand to a trillion.
In a sense, to speak briefly in praise of bubbles, this is good news. Important aspects of the world will be remade between now and when the bubble bursts. The bubble will finance lots of innovation, lots of long-term ideas that are not economically viable in the short term, and lots of personal reinvention. The last bubble, the three- or four-year (depending on where you date it from) of madcap euphoria that collapsed in 2001, financed the R&D of the industry that developed since that crash.
One of the reasonable arguments against bubbles is that crashes also delay development that might otherwise happen in a more systematic and orderly fashion. The other argument is that they distort reality: that they not only make the markets go crazy, they make people go crazy, too.
It's a kind of psychic havoc. People begin to live in fantasy world. An enormous amount of economic and emotional activity occurs outside the structure of cause an effect. When the bubble bursts, not only does all this illusory economic activity disappear, but the souls of the people performing this activity die a little, too.
Still, a bubble is the physiological and economic circumstance that makes people invest themselves and their money in the unlikely and even the impossible – that is, the speculative. Without a bubble, normally fearful and ambivalent people stay home.
Facebook now derives 80% of its revenue from advertising, but the ultimate upshot of the rationalizations that have attended the $100bn-plus IPO valuation, is that while Facebook can't sustain its growth metric on advertising alone (indeed, its advertising, as a per user value, is shrinking), it will surely think of something else. That is, if anyone will, Facebook will. Won't it?
That something else will involve … well, innovation, new models, evolving behaviors, and, of course, the ability to spend $100bn to get what it wants.
So, while a bubble distorts and delays reality, it doesn't change it. You only have so much time to prove yourself. And that's the point: it is easy to see the beginning of a bubble, which is why everyone is seeing it now, but hard to see the end.
One scenario has it that while Facebook races madly toward some proof of its proposition that it can be worth what people are now betting it will be worth (in itself, obviously, a fearful distortion of cause and effect), it will necessarily keep undercutting its own ad prices to keep revenues rising, therefore depressing the rest of the industry. While Facebook itself reported a sharp fall in its own CPMs (cost-per-thousand pages views) in the first quarter of 2012, so have other large, mass traffic sites – by as much as 25%.
So yes, the collapse is beginning even as the bubble is filling.
