The Incredible Sinking Bubble

He's using the low valuation of real tech companies (like Cisco) to argue the absurd value of social networking websites isn't out of whack. I don't agree with this logic at all. Although Groupon and Facebook are websites, they are really marketing companies. The bubble is in the value being placed on social networking audience sizes.

I'm not sure it is a sound argument because most of the valuations in question are being set by private and institutional investors. So, the evidence of this phase of the bubble (as measured in the Blank paradigm) would be a survey of the sentiment of the smaller subset of individuals who set valuations for companies - not the population as a whole.<p>Perhaps this is a nuance of the simplified model Blank presented (in the sense that every model is wrong). However, in my mind, it actually supports the Blank argument that a small set of private investors are effectively trying to create an investment that the public views as 'the opportunity of a lifetime'.<p>In other words, the Horowitz's argument is exploiting the holes in Blank's argument to divert from the obvious fact that we live in a cycle where it is clearly in the interest of every early-stage, private investor to be optimistic about valuations because they have a very good track record selling their story a greater fool in current market conditions.<p>Falling prices of public stocks (linkedin, pandora) is evidence that sellers have run out of greater fools for the moment. However, the IPO price itself is largely a function of the valuation private investors can convince the institutional investors to buy at and the <i>initial</i> sentiment the can market to the public (so in this case its the average sentiment of only the eager set of initial public investors).<p>I think this IPO price, and the funding rounds leading up to the IPO are of most interest. Further, I think the sentiment of the subset of the public involved in these investments is what Blank is talking about. And, I think Horowitz knows that, and is merely trying to deflect the debate in a direction that takes it away from looking like the insider-driven system that it is.

I guess a lot of outsiders are failing to see why "this time it's different". A/B testing, a savvier industry, and customers becoming more trusting of e-commerce means that the web sector really can grow.<p>There's a limit, and the industry will hit a wall when people start investing under the assumption that earnings will keep growing (rather than hitting a wall), but that doesn't mean that the industry is overvalued now.<p>Oh, wait, I need a conclusion. Avoid stuff that's obviously over-hyped, but don't worry too much about the macro stuff yet. I doubt that an industry-wide catastrophe is imminent, and you probably have bigger worries.

Glancing back at historic prices shows Yahoo's stock dipped nearly 30% from April to May of 1999 before starting to going nuts a year later. It'd be interesting to look at some historic prices of a company like IPET to see what the price swings were prior to the run up and subsequent popping.

As long as there is a wariness of a bubble, there will be no bubble. When everyone throws caution to the wind because they feel like they'd miss out, that's when it happens.

The bubble is in the eye of the beholder.