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Wednesday Grok: That’s not a tech bubble bursting, this is a tech bubble bursting

Wednesday Grok: That’s not a tech bubble bursting, this is a tech bubble bursting

Some perspective on the recent declines on the Nasdaq

The bubble burst before we could even agree it was there. There’s been commentary emerging about how the Facebook IPO marked the very point when the latest tech bubble started to deflate. If that’s true, then it’s a very contained and unusual bubble. Facebook has lost a third of its value, and Groupon more than half.

But if you lived through the disaster of dotcom 1.0, right now you are shaking your head, muttering into your warm coco and complaining that "young entrepreneurs these days don’t know how easy they have it". Yep, Gen Y dodges another bullet. Fracking typical.

Here’s a bit of reality for you. Facebook and Groupon and a few other stocks may be getting corn holed right now, but in the case of those two there are quite specific reasons.

With Facebook it’s because its revenue story is suddenly being questioned more vigorously and its IPO was poorly and cynically managed by a horde of rapacious grifters. And with Groupon it’s because, you know, it’s Groupon.

The wider market though paints a different picture — and you need to remember that when the commentary starts in a few weeks comparing today’s declines to the world of post 2000. Let’s call bullsh*t on such commentary before it even gets going.

Since its most recent peak at the end of March, the Nasdaq composite index has lost about 10 per cent of its value and that’s in the context of a whole bunch of very ugly macro conditions that didn’t exist in 2000.

Indeed, the current decline looks like barely a murmur compared to late 2008 when the index fell off a cliff with the GFC. But even that pales compared to what we all went through in 2000 and 2001 when the whole tech sector crossed the event horizon and was immediately spaghettified. As this chart attests , that was a crash to be proud of. Nasdaq has never even come close to recovering the highs of that time at any point over the subsequent 12 years. At current growth rates, that will probably take another 12 years just to get square.

The other point about market in 2000 was that not only did the dotcoms get taken out, but the IT vendors who bought stock in them with equipment rather than cash got smashed as well. That’s because apart from the balance sheet impact of their bad investments, all that brand new gear they traded for equity ended up on eBay at knock down rates — often still in the original shrink wrap.

And there was a further complication. During 2000 and 2001, big global corporations were emerging from years of huge system overhauls to their core businesses to account for the Y2k bug. In other words, all the great systems integrations came due at once (December 1999 to be precise) and that killed demand for further systems renewal over the following three years. Then came September 11, and Enron — and everyone just put up their arms and went home.

At the time Grok was the Australian editor of <i>The Industry Standard</i> — the then bible of the dotcom sector and as big a consumer of the sector’s malarkey as anyone. While its editorial line was sceptical, often its business practice was as loose as every crazy eyed dotcom burn-rater with a bucket of someone else money to lose — in this case IDG’s (the publisher of this site) and Pearsons'. It was for a time the most successful magazine in the history of the world. There’s has never been anything like it, and as far as print goes — there never will be again.

Grok doesn’t have the precise numbers anymore but generally the word around IDG at the time was that revenue at The Standard (a magazine and website) grew from zero to $US240 million in 18 months and then fell from $240 million to zero in six months. And while the numbers where obviously rounding errors, my salary at the time traversed a similar trajectory.

And lastly, a slightly contrary suggestion: If it’s true that Facebook’s IPO defines the high tide line, then Mark Zuckerberg is even more of a genius that we realised. It’s tempting to imagine that he didn’t so much pick the top of the market, as defined it for himself. More likely though, it’s just poor dumb luck.

We’re on the way to nine billion mobile subscriptions in five years’ time: Ericsson

Finally there’s a great infographic on <i>Mashable</i>, published this morning which looks at the expected dramatic growth in high-speed internet mobility between now and 2017. According to a report from Ericsson, by then 85 per cent of the world’s population will have access to 3G. Of course having access to the service and actually having the capacity to use it, instead of say, starving to death, or being murdered by rival sects in a refugee camp are different matters, but you get the picture.

According to Mashable, “By 2017, there will be 9 billion mobile subscriptions. Half of the world’s population will have a 4G connection, and there will be 3 billion Smartphone subscriptions. To compare those numbers with today’s figures, there are currently 6.2 billion mobile subscriptions held by 4.2 billion subscribers (many of whom have multiple subscriptions). At the end of 2011, there were 700 million Smartphone subscriptions worldwide.”

You can download the Ericsson report by clicking here.

Andrew Birmingham is the CEO of Silicon Gully Investments. Follow him on Twitter @ag_birmingham. And he wouldn't trade his time at The Standard for anything.

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