1996 All Over Again?

Thoughts on Carrier Evolution (Feb 20 2011)

1. We are roughly 16 years past the "Internet" explosion of 1996, the subsequent investment bubble and roughly 10 years past the "Internet meltdown" of 2001. But things are stirring, suggesting we are about to enter yet another big wave of Internet innovation, with the likely over-investment typical of a bubble. 

   Some might note that in January 2011 Goldman Sachs valued Facebook at $50 billion. Some 30 days later it is being valued at $60 billion, while similarly rich valuations are bandied about for firms without a sustainable revenue model, at least not yet. 

   In fact, Google's CEO Eric Schmidt recently said "There are clear signs of a new Internet bubble in corporate valuations." http://www.reuters.com/article/2011/02/10/us-google-idUSTRE7197CO20110210

   Kleiner Perkins Caulfield Byers partner Mary Meeker has been noting for a couple of years that the "next wave" of computing is upon us, with a new wave of leading companies rising. 

   The point is that 2011 seems to be a sort of "1996" moment, when a wave of investment, and over-investment, occurs. The good news is that there are reasons to believe that in the Internet space, another wave of serious innovation is about to hit. The bad news is that a bubble is forming that will wipe out lots of capital and take scores to thousands of companies with it, when the inevitable "bust" occurs. 

   During the late 1990s, telecom was seen as a "competitive, high-growth business" drawing billions of dollars of fresh capital. Supported by bullish Wall Street analysts and investment banks eager to reap big stock-offering fees, industry executives helped the pot grow bigger and bigger with talk of telecom's endless growth possibilities. That is not to say company founders will lose out. They didn't, last time. http://www.happinessonline.org/InfectiousGreed/p21.htm

   But private and public investors lost hundreds of billions. That is not to belittle the vastly-different world pre-bubble and post-bubble. To say there was wild over-investment is not to say the handful of significant new leading firms did not change the Internet, and most of what it touches, in big ways. They did. 

   The larger point is that we are in a new wave of serious innovation related to computing, the Internet and communications. That means we also are at the beginning of another bubble.

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