Thursday, May 17, 2012

Bubble 2.0 - details on the eve of Facebook's IPO

Okay, so back when Facebook was first valued at $50 billion I wrote a post proclaiming a new tech bubble.

But then a friend mentioned that it's not very meaningful to just say that we're in a bubble. The useful thing is to say when it will end, how much prices will drop, or at least what phase of the bubble we're in.

Touché. I didn't have an answer to that. But now I just ran into an interview on (shudder) TechCrunch that was actually very informative. It was with a tech investor, and I know what you're thinking, but he actually seems quite grounded and well-versed in the economic history of bubbles. I think he gives a pretty realistic picture of where we are.

In short, we're in the second or third phase of a bubble that was kicked off by Yuri Milner and Microsoft investing in Facebook at a $10-15 billion valuation. Then the second phase was high valuations of competitors like Twitter. And yes, the third phase will follow high-price purchases like Instagram at $1 billion. But I guess what really matters is the fact that it's not going to really get crazy (and crash soon after) until people stop worrying that it's a bubble and it's all fake. Buuuut I'm not sure that'll ever happen, given the memories of the last bubble. So I don't quite know how that plays out. In the end it seems we still have a few years before it all crashes to earth.

The video: “In the Studio,” CRV’s George Zachary Discusses Bubbles on the Eve of Facebook’s IPO - TechCrunch

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