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Facebook, Instagram, Ben Bernanke: Thank You For the New Tech Bubble

Soulskill posted about 2 years ago | from the grab-some-popcorn dept.

Businesses 124

pigrabbitbear writes "Those who continue to inflate the tech bubble will be quick to remind us all of how they've learned from the past. That this time, it's simply different. They do have a point. Silicon Valley (and Alley) have matured. Startups these days are focused, driven, and efficient, creating products that people actually use. In a period of less than a year after its launch, Instagram was used by 5 million users, who by August of 2011 had uploaded 150 million photos. But even with these impressive results, it's impossible to ignore the fact that many of the fundamental economic factors that led the first bubble remain." A couple other readers contributed similar articles — Instagram's sale seems to have solidified the idea for many that we're in the midst of another tech bubble, though some are more certain about it than others.

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focused and driven (4, Insightful)

Anonymous Coward | about 2 years ago | (#39750707)

yeah, they're focused on money and driven by greed.

Re:focused and driven (2)

SolitaryMan (538416) | more than 2 years ago | (#39752605)

Well, actually, that wouldn't have been a problem. I mean if they were focused on revenue. But since default business model these days is to try to get acquired by big guys... yeah, it is a problem

Re:focused and driven (1)

rtb61 (674572) | more than 2 years ago | (#39753683)

Especially in this case when the 'big guys' are the pension funds with executives going for off shore tax haven purchasing commissions. So actually targeting the little guys, don't worry if your missing out, the scheme is coming for your social security cheque real soon. Maybe that's what they're waiting for when it comes to the Facebook IPO, the big 'Social Security Rip Off', when the US social security funds get privatised and dumped in all the worst investments imaginable, Goldman Sachs style.

Re:focused and driven (2)

oztiks (921504) | more than 2 years ago | (#39753415)

Yeah, but we have to consider a few things here. The apps are driven by the App Stores themselves Apple / Google alone has the power to influence the decision of the users. TBH I had no clue what an "Instagram" is or was (and from what I can gather its merely a unit measurement of stupidity) but until FB purchased it and it made headlines only 30 million people were the wiser.

App Stores brand awareness is built by the concept of someone owning a device and thinking "I want an app that does ...." and then "Oh there are 10 out there that are listed, 3 of them that have lots of stars against it". "One of them is free OK that's the one I'll download, oh crap the free one only had good ratings cause it was free I'll download that other app for 0.99c". Basically what I'm trying to say here is that Instagram as a brand is really nothing.

Now to actual user base value (hardly worth $1b) that's already accounted for and wrapped around larger more powerful framework (Google/Apple). If Google wants to create a native app then how will affect FB and the anti trust case would be hard to build on this one because the option to download the free counterpart is still present. Apple would be the wildcard as it hasn't an allegiance to either company.

Revenues? (5, Insightful)

khasim (1285) | about 2 years ago | (#39750761)

So it sold for a billion dollars.
It must have had some serious revenue to make it worth that much.

It didn't?
Then we've learned nothing from the last bubble.

Re:Revenues? (4, Insightful)

macromorgan (2020426) | about 2 years ago | (#39750791)

Doesn't necessary have to have revenue of a certain amount (probably net profit in the neighborhood of 50-100 million annually would value it at a billion), but it does have to be worth that money to Facebook to justify the purchase price. Perhaps Facebook was afraid that Instagram was quickly becoming the go-to social network for sharing photos. Taking them out of the equation would have been worth it. Of course since we're asking these questions about valuation, I have reason to believe we at least learned SOMETHING from the last tech bubble.

Easier and cheaper ways to do that. (5, Insightful)

khasim (1285) | about 2 years ago | (#39750905)

Perhaps Facebook was afraid that Instagram was quickly becoming the go-to social network for sharing photos. Taking them out of the equation would have been worth it.

Or you dump 1/10th of that money ($100 million) into creating your own app that does the exact same thing and is tied to Facebook.

And you've saved $900 million. Which can be used for other projects or acquisitions.

Of course since we're asking these questions about valuation, I have reason to believe we at least learned SOMETHING from the last tech bubble.

If we have, I don't see it.

The dotcom bubble was all about the IPO or selling to someone bigger and becoming an instant multi-millionaire.

We have the huge IPO's again and now we're seeing the massive purchase prices of systems without viable revenue streams.

Re:Easier and cheaper ways to do that. (2, Interesting)

Anonymous Coward | about 2 years ago | (#39751033)

Or you dump 1/10th of that money ($100 million) into creating your own app that does the exact same thing and is tied to Facebook.

And instantly its compared to Instagram and if its head and shoulders above Instagram then everybody would be screaming "why didn't they just buy Instagram".

Also another angle is that it keeps it away from google and google+, avoiding a battle between Facebook's photo-sharing capabilities and Google+ + Instagram and there shiny, shiny marketing campaign to lure photocentric people away from g+.

Re:Easier and cheaper ways to do that. (0)

Anonymous Coward | about 2 years ago | (#39751071)

fsck "if it isn't"

Re:Easier and cheaper ways to do that. (1)

SolitaryMan (538416) | more than 2 years ago | (#39752629)

And instantly its compared to Instagram and if its head and shoulders above Instagram then everybody would be screaming "why didn't they just buy Instagram".

Well the answer in that case would've been pretty straightforward: it was damn expensive.

Re:Easier and cheaper ways to do that. (1)

gtirloni (1531285) | more than 2 years ago | (#39752993)

TypeError: bad operand type for unary +

Re:Easier and cheaper ways to do that. (2)

smelch (1988698) | more than 2 years ago | (#39753079)

In what language is + a unary operator?

Re:Easier and cheaper ways to do that. (0)

Anonymous Coward | more than 2 years ago | (#39754317)

Python, for example.

>>> + "dupa"
Traceback (most recent call last):
    File "", line 1, in
TypeError: bad operand type for unary +: 'str'
>>> + 1
1

Re:Easier and cheaper ways to do that. (0)

Anonymous Coward | more than 2 years ago | (#39754451)

Actually, lisp (scheme, at least) is even better in this regard:

> (+) ;nullary
0
> (+ 1) ;unary
1
> (+ 1 2) ;binary
3
> (+ 1 2 3) ;ternary
6

and so on.

Re:Easier and cheaper ways to do that. (1)

Anonymous Coward | about 2 years ago | (#39751351)

The dotcom bubble was all about the IPO or selling to someone bigger and becoming an instant multi-millionaire.

But that's essentially what Instagram did.

It sold 10% of the company to some other investor for $50M, a price that gave the company an implicit valuation of $500M.

At that instant, anyone who wanted to buy out the remaining 90% has to pony up about a billion. And everyone who owns shares (i.e., the original VCs that funded it) has at least some liquidity in a secondary market - maybe you're an employee who doesn't care whether your shares, acquired via options for pennies, trade at a value that implies a companywide $400M or $600M - because either way, you're a millionaire.

That's fundamentally no different than what the Social Media 2.0 Bubble companies are doing right now - except they're doing it via an IPO of a limited percentage of the company.

Re:Easier and cheaper ways to do that. (4, Insightful)

Mitreya (579078) | about 2 years ago | (#39751441)

Or you dump 1/10th of that money ($100 million) into creating your own app that does the exact same thing and is tied to Facebook.

They eliminated a competitor and (more or less) bought their user-base
The actual code isn't worth nearly as much.

Maybe. (1)

khasim (1285) | about 2 years ago | (#39751501)

They eliminated a competitor and (more or less) bought their user-base

Maybe. Although I'd expect that most of Instagram's userbase is already part of Facebook's userbase. So they'd be paying a billion dollars for access to people that they already had access to.

Which is the point. If they can get that for a billion dollars, can they get the same for less?

Can they get BETTER for less?

And by "for less" I'm talking about a hundred million dollars. Which is why I think that this is part of the new "bubble" and not a wise or reasonable business investment.

Re:Maybe. (1)

mobby_6kl (668092) | more than 2 years ago | (#39754509)

Remember Google Video? I'm sure it was as good or better than Youtube, and most of YT user base overlapped with Google's user base, but Google ended up buying Youtube and shutting google video down.

Re:Easier and cheaper ways to do that. (1)

R3d M3rcury (871886) | about 2 years ago | (#39751757)

Or you dump 1/10th of that money ($100 million) into creating your own app that does the exact same thing and is tied to Facebook.

And the 30,000,000 people using Instagram will immediately go, "Gosh! I'll just dump that ol' Instagram and use this instead!"

Like Instagram is the only one out there doing this. There are bunches of these. Somehow, they haven't managed to be as successful as Instagram by doing the exact same thing Instagram does.

Don't get me wrong--paying $1 Billion for Instagram is ridiculous, IMHO. But saying, "They could have done it themselves cheaper" isn't really the case either.

Re:Easier and cheaper ways to do that. (1)

ohms (728912) | more than 2 years ago | (#39752499)

Or you dump 1/10th of that money ($100 million) into creating your own app that does the exact same thing and is tied to Facebook.

And you've saved $900 million. Which can be used for other projects or acquisitions.

How many people have tried this strategy and succeeded. "Oh, Nimblesoft has made this awesome app, let's throw in a chunk of money at the problem, put in some really smart guys, and see if we can get something as successful". I don't even need to quote some product examples that were the brainchild of this noble, yet ill-informed idea. Facebook not so much purchased Instagram as they purchased the brand identity and its ecosystem. That imo takes way more to develop than just $100 million. So, saying that they'd have saved $900 million, without looking at the app dev time, manpower, and the risks of it not even being successful in the first place is a bit simplistic.

Re:Easier and cheaper ways to do that. (1)

TheRedSeven (1234758) | more than 2 years ago | (#39752663)

The value is in the EXIF geo-location data. That is all.

Re:Revenues? (1)

jhoegl (638955) | about 2 years ago | (#39750815)

I would call this purchase a one off. It is not representative of the "tech bubble", because only FB is affected.
However, i do believe there is another tech bubble.

Re:Revenues? (1)

billcopc (196330) | about 2 years ago | (#39750925)

Nope.

It's a stupid copy/paste effect, the kind any 12 year old could have written with 8 lines of PHP code and a few generic templates.

Why aren't they buying memegenerator.net for a billion dollars then ? Their tech is arguably superior since they can render UPPERCASE ARIAL FONT TEXT!

Pretty much anything with Facebook and "money" in the same sentence is guaranteed to be nonsensical.

We != Mark Zuckerberg (2)

Gordo_1 (256312) | about 2 years ago | (#39751113)

He single-handedly did the Instagram deal without outside involvement. He was 14 years old when the last bubble crashed, and he probably didn't learn a whole lot from it.

Then again, with Facebook now worth upwards of $100B, he can afford to overpay for companies by 10x and get away with it.

Re:We != Mark Zuckerberg (3, Funny)

hemo_jr (1122113) | about 2 years ago | (#39751249)

And he talked them down from $2 billion, thus showing his haggling skill and business acumen.

Re:We != Mark Zuckerberg (1)

interkin3tic (1469267) | about 2 years ago | (#39751859)

Speaking as someone who is about the same age as Zuckerberg, I'm a little insulted. Just because I was 14 doesn't mean my brain was ENTIRELY filled with sexual thoughts. "People were throwing money at anything dot com until it was ridiculously overvalued, and then they lost that money" made sense. It's not complicated.

Anyway, who knows what the thinking here was. I've heard speculation that instagram had a good chance of unseating facebook. Sounds ridiculous, but I said the same thing about facebook in reguards to myspace when I was closer to 20, so what do I know?

Re:We != Mark Zuckerberg (1)

Anonymous Coward | more than 2 years ago | (#39753567)

"People were throwing money at anything dot com until it was ridiculously overvalued, and then they lost that money"

That's what happened, but why didi it happen? Companies were buying smaller companies for millions of dollars when there was little or no relative ROI. Companies didn't respect the dollar, and when you run out of them, you're done. That's the concern of a new bubble.

Where do you get a $1bil ROI out of Instagram? I don't use it, so I don't know. If they sold ~$30 of advertising to every Instragram user (assuming 33mil users), they'd break even, so that doesn't seem too unrealistic, especially if you sell by views rather than clicks. If a really good chunk of Instragram users are U.S. based, that's even more realistic.

Re:Revenues? (4, Insightful)

Sir_Sri (199544) | about 2 years ago | (#39751651)

Not necessarily revenue, but *potential* revenue, talent, or IP, and a customer base that wasn't already part of facebook.

He may also be seeing something that with the right investment will be worth hundreds of millions in revenue.

On talent: Deals like this usually stipulate that the leadership of the company being bought (in this case I'd guess that's most of the 13 employees) have to stick around for while or they lose shares or the like. He might be figuring they have a vision that can translate into users, or facetime on facebook, which would translate into revenue. He's also valued at probably 20 billion dollars so figuring someone else should be worth a hundred million wouldn't seem out of place.

IP. IP seems unlikely, but Instagram may own, or be able to acquire intellectual property rights on what they're doing, and that could put facebook in a bad position if it's dealing with them by duplicating their service.

Instagram customers may not be facebook customers. When you have 800 million users it's pretty hard to see where you're going to get many more from. There are only 7 billion people on the planet, half are too old or too young to be on facebook, another large blob are too poor, or illiterate or both to have internet access and facebook. Leaving, on a good day, ~2 billion potential facebook users. And some of them really don't like facebook (including half the /. crowd) so they won't be customers no matter what. He may be figuring that for a billion dollars he can increase his 'user' base from 800 - 850 or 900 million, which would increase facebooks value by 5-10 billion dollars.

In terms of future revenue he may be seeing something the rest of us aren't thinking about too much. Ads are probably worth more the more time you're on a page. Instagram may attract more facetime for existing users, as in they'll be online longer, and therefore can get more ads spewed at them, additionally getting them in the facebook team early would be preferable to having to buy them out later when they may be worth 2 billion dollars. He may know what we don't, which is how much an extra minute of time on facebook is worth, and how many minutes people are spending on instagram

Facebook is probably also paying largely with facebook stock. That means the valuation is a paper one, not a real one. You work for facebook, you get facebook stock, and if facebook tanks they aren't on the hook for anything particularly cash wise.

And he might just figure with the right investment there's could be a product worth selling.

Of course he could be completely wrong on any or all of those counts. But this is a good time for potential future shareholders to see just how much power "Zuck" really has at facebook, and whether or not they want to be involved with that.

Re:Revenues? (0)

Anonymous Coward | about 2 years ago | (#39751907)

"We?"

We didn't pay a billion dollars. This isn't 401k money. The common man isn't throwing his cash into this. The Facebook board of directors made this purchase. A handful of people.

If this is a bubble, it's at the early stages. Wait until your taxi driver is buying unprofitable companies.

Re:Revenues? (1)

jbolden (176878) | about 2 years ago | (#39752227)

Facebook wasn't buying revenue. Instagram represented 30m users engaged in social networking which would be a terrific way to get Google+ off the ground. Facebook bought to maintain their monopoly. They are going to make some money but honestly it wouldn't have changed the deal much if they had to buy Instagram and burn the business to the ground the next day.

Re:Revenues? (0)

Anonymous Coward | more than 2 years ago | (#39753175)

So it sold for a billion dollars.
It must have had some serious revenue to make it worth that much.

It didn't?

Wrong. The revenue the company produces today accounts for a small % of the company's total value especially if it is a new company. A firm's value is based upon all of its expected future cash flows (basically net income). For example when you purchase a brand new car it is worth quite a bit because it is assumed the car will function for a certain number of years. In the case of a firm, it is assumed that it will produce a certain amount of income in the future. A firm decides to acquire another firm when it believes the other firm's cash flows are higher than publicly known, or it believes it can add value to the company. In other words, it is undervalued. Look up "Net present value" on Wikipedia.

In addition, firms usually have to overpay when acquiring a company to overcome poison pills and appease stockholders.

Despite this, it is still possible that Facebook overpaid by a lot - considering Zuckerberg has a history of unexpectedly purchasing companies without notifying his board of directors. But it was most likely an informed and calculated decision.

Re:Revenues? (0)

Anonymous Coward | more than 2 years ago | (#39754387)

Not just revenue. Revenues that pay dividends. This is the only legitimate way of earning money out of investment in a company.

You can of course speculate that the company will bring a lot of money in the future and invest your money up front (risking that it may not happen). If many people think the same way the valuation of the company will rise, so you can earn some money even before the company does. But the assumption is that ultimately the dividends will show up or everyone involved has to write off the investment.

We're living in a bubble because valuations of the companies grow even though many (most?) of them made it very clear that they are not going to pay dividends in a foreseable future, probably never.

As with any bubble, it will end abruptly when people/companies can no longer afford to pay the price. Of course, no one is buying startups with their own money, near the top of the bubble the money come mostly from loans (either directly from banks or through investors) but ultimately, people have to be able to at least pay the interests.

Re:Revenues? (0)

Anonymous Coward | more than 2 years ago | (#39754439)

One more way of looking at the bubble is as if it was a plain old inflation.

There are bubbles all over the place - banking, technology company, housing, education, healthcare, you name it. But there are no bubbles (excluding world-wide inflation) in manufacturing, agriculture, commodities etc. - in segments where we can simply import stuff and we can find enough desperate countries ready to take our inflation away (read: send us cheap stuff and pile up our currency).

In a sense, a bubble is an inflation concentrated on a single segment of the market, one where there are no external inhibitors. Instead of a market-wide devaluation of currency we get a local "hiper-inflation", which of course can't go for very long because the rest of the market is pinned down in place.

Because of the FED actions we can expect more bubbles in the future. Each punctured bubble will be reinflated with newly printed money, just as it was done with the housing bubble. This is of course inflating the debt/currency bubble, which, when bursts, will... (any ideas?)

Products (4, Insightful)

0123456 (636235) | about 2 years ago | (#39750765)

"Startups these days are focused, driven, and efficient, creating products that people actually use."

Creating products that people use is easy. Creating products that people will pay to use is the hard part.

Re:Products (2, Insightful)

Loughla (2531696) | about 2 years ago | (#39750813)

I would argue that it isn't. People pay to use facebook, and they pay quite a bit ------> Privacy. That is the new currency.

While it is terrifying, I find it fascinating that we're actively having our old currency replaced by an entirely new one.

Eh? (1)

Anonymous Coward | about 2 years ago | (#39750893)

We're not replacing anything. What's happening now is simply is business as usual - or do you think corporations and the government haven't been trading analytical data on people/customers/et cetera since forever?

Even the, "Hurr, it's free!" Google/Facebook/etc. crap isn't new. Grocery store discount cards, anyone?

Re:Products (1)

vakuona (788200) | about 2 years ago | (#39751747)

People aren't paying with their privacy. People are paying in dollars. People buy stuff advertised on facebook and their partner sites. The privacy angle is mostly about them targeting ads, or creating a large enough userbase (people who want to look at your photos) that they can advertise to.

Re:Products (3, Insightful)

Anonymous Coward | about 2 years ago | (#39750877)

Creating products that people will pay to use is the hard part.

Instragram wasn't created for the monkeys shooting pictures at each other. It was created for the advertisers that pay for monkey's eyeballs. They do indeed pay.

Re:Products (0)

Anonymous Coward | more than 2 years ago | (#39754483)

Just having *someone* to pay *some* money isn't enough.

Are they (now or in a not too distant future) willing to spend ~$500M a year? This is the level of revenue that would make this investment profitable.

No one would question this decision if Facebook spent $10M (OK, let's be generous - $50M) on this company.

Re:Products (0)

Anonymous Coward | about 2 years ago | (#39750879)

that or all of the advertisers that are pouring money in.

Re:Products (2, Interesting)

interval1066 (668936) | about 2 years ago | (#39751151)

Creating products that people use is easy.

I'm not so sure that's exactly true. It's easy to throw up a web site, a bit harder, but still possible to push up its visibility. Getting people to use it? Not sure sure anything short of voodoo makes that happen. I still don't really get twitter. Seems like voodoo to me.

Re:Products (0)

Anonymous Coward | more than 2 years ago | (#39753609)

> I still don't really get twitter. Seems like voodoo to me.

I'm glad I'm not the only one.

Short story (-1)

Anonymous Coward | about 2 years ago | (#39750769)

Zuckerburg uploaded pictures of himself riding a bear in a clownsuit to instagram and 3 days later he buys them out.

Re:Short story (-1, Offtopic)

Anonymous Coward | about 2 years ago | (#39751051)

Just so there's no confusion, "riding" means "butt-fucking" and "bear" means "hairy homosexual man".

Re:Short story (0)

Anonymous Coward | about 2 years ago | (#39751583)

That might be closer to the truth than some would guess. Zuckerburg made the purchase without consulting the board, and quickly before the IPO when other stockholders could squawk about it. When I read about it my first thought was that he must be in bed with Instagram's founder.

Fundamentals? (1)

gatfirls (1315141) | about 2 years ago | (#39750771)

Does that drive anything on wall street (or in this country) anymore. It's humorous to watch the DuckTales bottle cap episode play out in real life over and over again.

Re:Fundamentals? (1)

Riddler Sensei (979333) | more than 2 years ago | (#39752765)

I was interested by this and believe I found the relevant film spliced into sections and with extra commentary: Monetary Economics and Ducks [youtube.com]

Neat little episode.

How much money has your grandmother invested? (1)

Anonymous Coward | about 2 years ago | (#39750789)

Oh right, this isn't the same thing. If Facebook spends a billion dollars on a company, and it flops, then FB goes under... not your 401k.

Facebook = worthless. (-1)

Anonymous Coward | about 2 years ago | (#39750827)

Facebook has never produced ANYTHING of tangible value, and it never will.

It's all too reminiscent of the old fairy tale of "The Emperor's New Clothes".

Look at companies with real value, and you will notice that those companies
actually PRODUCE THINGS.

All Facebook produces is bullshit data which may never actually make any money for anyone.

Re:Facebook = worthless. (2)

cdrguru (88047) | more than 2 years ago | (#39752475)

Facebook produces gaping customers that are ready for the plucking by advertisers. It is really one of the few commodities that can be produced in the US today. It doesn't pollute, it isn't involved in any sort of racial profiling and it doesn't require raw materials from either a strip mine or China.

Re:Facebook = worthless. (0)

Anonymous Coward | more than 2 years ago | (#39753687)

Yes, this. If I want to sell rubber duckies, I could spend oodles on a SuperBowl ad (one extreme) and hope that a lot of people who watch the Super Bowl also take baths and like rubber duckies. I could also spend significantly less and only send ads to every person in the U.S. who likes baths and rubber duckies (other extreme), that's a no brainer. My rubber duckie / bath potential customer list is also dynamic and real time. That's marketing gold, and marketing is fucking expensive.

Also, SuperBowl ads only make sense to companies who sell a broad product that everyone could want (like shampoo or blenders, not rubber duckies) but Facebook offers many many different niche companies sensible marketing avenues. Not only that, if I'm a super niche glow in the dark rubber duckie company, Facebook can find customers who may be interested and not charge more to find the specific market. That is also marketing gold, and I've already discussed how expensive marketing is.

Social networks != software industry (2)

Brian Feldman (350) | about 2 years ago | (#39750865)

Most software is more mundane and niche than the fly-by-night social network phenomena. Software underlies the processes that operate the world. This is far bigger than a few companies/services.

Start up bus (0)

Anonymous Coward | about 2 years ago | (#39750917)

"Silicon Valley (and Alley) have matured. Startups these days are focused, driven, and efficient, creating products that people actually use" The StartBus begs to differ.
http://startupbus.com/americas/

Tags (1)

trancemission (823050) | about 2 years ago | (#39750923)

Can't tag - mod this up.

Re:Tags (1)

trancemission (823050) | about 2 years ago | (#39750961)

Slashdot fail - can't reply to parent

Regarding bubbles.... (stock related) (2, Interesting)

Anonymous Coward | about 2 years ago | (#39750933)

I bought 14 stocks during the dot com boom and I sold everyone of them 90 days after I bought them.

It was a very profitable year.

The bubble now that everyone should be paying attention to is gold. It's at a ridiculous valuation, it's unsustainable and when you hear companies marketing to the general public that they should switch from greenbacks to dollars, you know you should steer clear.

I am loading up right now on a gold short (ticker: DZZ). It's a position that, once gold's price collapses, should rocket up. Besides you have very little chance of being part of a company that Facebook is going to buy anyway.

Be fearful when others are greedy and greedy when others are fearful.... Warren Buffett.

Re:Regarding bubbles.... (stock related) (0)

Anonymous Coward | about 2 years ago | (#39752049)

I am loading up right now on a gold short
Be fearful when others are greedy and greedy when others are fearful.... Warren Buffett.

Uh huh. When was the last time gold prices collapsed?

Re:Regarding bubbles.... (stock related) (2)

mikestew (1483105) | more than 2 years ago | (#39753959)

1980.

Re:Regarding bubbles.... (stock related) (0)

Anonymous Coward | more than 2 years ago | (#39753995)

You're going to lose your ass buying DZZ and waiting for a gold price crash. DZZ and other other leveraged products like it are really only useful for very short-term trading. If you hold for a few months or more, the daily ups and downs will utterly destroy the capital you invest due to frictional losses tied to the way the product is structured. Plot the price of DZZ against the price of gold over a period of more than a few days and you'll see that there isn't an inverse 2:1 correlation. The extreme underperformance of DZZ is due to its daily rebalancing of the derivatives it is based on.

That said, gold is not a bubble and probably will not be for a few years yet.

Simple Explanation for Instagram (5, Interesting)

FsG (648587) | about 2 years ago | (#39750965)

For anyone who's still scratching their head about the instagram purchase, here's something to think about.

At least one of Instagram's employees, Philip McAllister, was at Gowalla when it was picked up by Facebook less than 6 months ago.

That guy might be the luckiest bastard in the world, having worked for 2 tiny companies whose only significant accomplishment was getting acquired by Facebook. On the other hand, Zuckerberg could just be funneling company money to friends?

Re:Simple Explanation for Instagram (3, Informative)

hardtofindanick (1105361) | about 2 years ago | (#39751641)

Zuckerberg could just be funneling company money to friends?

+Adam D'Angelo

It's not even a new bubble (0)

Anonymous Coward | about 2 years ago | (#39750979)

We've been deflating and re inflating the same once since 2000. It never went away, just waned a bit. It'll still pop.

It was just a Mark Zuckerberg whim (1)

prestonmichaelh (773400) | about 2 years ago | (#39750983)

Instagram isn't a good data point. The instagram purchase was done pretty much by Mark Zuckerberg alone, and then told to the Facebook board (not proposed).

Pretty much it was a rich kid saying, "oh yeah twitter, 1 Billion dollars, how do you like that?!?"

I don't think this bubble is the same. Recent IPOs (Groupon, Zynga, etc) have pretty much calmed down (although they may still be somewhat too high, it isn't as crazy as the last time). Google just make 2.9 Billion, so their valuation is pretty reasonable. Facebook, according to SEC filings is cash positive, so it isn't unreasonable to place at least some value on them as well.

How many of the 5 million users are spambots? (5, Interesting)

tokengeekgrrl (105602) | about 2 years ago | (#39750991)

I'm always perplexed why the quality of the number of users is never challenged.

How do you know a ton weren't generated as apart of some marketing strategy?

Or rather, how can you NOT suspect that a significant portion of them aren't fake?

Has the issue of verifying online registration as belonging to an actual, unique person been solved with absolute certainty while I wasn't paying attention?

- tgg

Double Bubble Trouble (1)

Tablizer (95088) | about 2 years ago | (#39751001)

As long as this particular bubble ONLY hurts the greedy and the stupid, bring it on!

Re:Double Bubble Trouble (0)

Anonymous Coward | about 2 years ago | (#39751161)

Never happens. Violently holding interest rates at a number contrary to what the market(IE: society) would do does not just hurt the greedy and stupid. It hurts everyone save for a few insiders. It is impossible to avoid the pricing mechanism signals, so if they are artificial, the means by which investors and entrepreneurs(even smart ones) make their decisions are going to be deceiving.

Re:Double Bubble Trouble (1)

Tablizer (95088) | about 2 years ago | (#39751215)

Nasty bubbles happened long before interest rate management and they continued to happen after. Thus, the field evidence that rate management is harmful or that it enhances bubbles is subtle or missing. At best you could make the argument that since it is not a clear fix, it should be done away with.

Crucial difference from Bubbles Past... (3, Interesting)

dryriver (1010635) | about 2 years ago | (#39751003)

The last few Tech Bubbles popped when the U.S./World Economy was doing alright. And even then they did tremendous damage. If this one pops, it will pop in the middle of an already quite severe Global Economic Crisis. And that won't help make things better. As for Facebook & Twitter... I'll eat my hat if by 2015 either one is worth 1/5th of what it is currenly valued at. Both are places where lots of people with time to ki hang out because they are Free & Social & Trendy. If the World Economy manages to get back on its feet in the next 3 years, I doubt that so many people will hang out at these free "Social Hangouts". Facebook is seriously boring. Twitter is a mere novelty that may go out of fashion, globally, within a span of a mere few weeks. I wonder what will replace FB&Twitter 3 years down the road. As for "Instagram", only a terrifically stupid person (like the Zuck?) would pay 1 Billon for a company whose greatest achievement is throwing a few nice looking photo filters togethers and letting users post images online. 1 Billion Dollars invested differently would buy - litterally - thousands of unique, custom-developed Photo Filters. Its Bubble-Time, all right, judging by what is happening. And its going to burst eventually. My bet is on mid-to-late 2013, or maybe early 2014. It all depends on how the Zeitgeist changes in the next 12 - 18 months.

We'll see about that... (2, Interesting)

Anonymous Coward | about 2 years ago | (#39752329)

2015. You, me, and a hat.

Re:Crucial difference from Bubbles Past... (1)

gtirloni (1531285) | more than 2 years ago | (#39753033)

Just like the last financial bubble happened because people were playing with risk by creating AAA-rated assets basically from shit, Mr. Zuck just played with risk. He payed $1bn for who knows how many real users that Instagram has on the possibility (risk) that he might actually get some revenue from them. Something that Instagram hasn't done until now and that I seriously doubt it can. One could argue that Mr. Zuck can go to his advertisers now and say "look, advertise with us, we just got another 50m users to see your ads"... and they WILL buy it and will pay for it. So I understand why Mr. Zuck did it but I'm sad that so much money is getting wasted on stupid stuff. All cats, all the time.

Netscape. (2, Interesting)

superdude72 (322167) | about 2 years ago | (#39751053)

For a while there, everybody used the Netscape browser and the Netscape portal page was the first thing everyone saw. That is, until Microsoft got around to making a better browser and the Apache server ate Netscape server's lunch. I believe Mark Zuckerberg was around 10 years old at the time.

Remember when they were trying to guilt their users into upgrading to Netscape Gold for like $30-40? Hilarious!

Re:Netscape. (1)

cpu6502 (1960974) | about 2 years ago | (#39751527)

Nobody was laughing though when Microsoft was prosecuted for violating the Sherman Antitrust Law of 1890. They may have squashed Netscape, but it cost them dearly.

Re:Netscape. (0)

Anonymous Coward | about 2 years ago | (#39751901)

Really,
      If I remember correctly they were ruled and illegal monopoly, then had the judge removed and then the Bush administration stepped in. The final results were that their punishment ended up with them consolidating more into a monopoly, if it wasn't for Europe, the would have totally removed samba's ability to connect. I fail to see how Microsoft has been punished for being and illegal monopoly as of yet.

Re:Netscape. (1)

shuz (706678) | more than 2 years ago | (#39753659)

Netscape server became Sun Iplanet, which was BSD Licensed (now owned by Oracle who has been trying to kill it because it is BSD and subsequently too free and open). Iplanet is still a great Java application/Web server. It has a pretty good enterprise level management interface and will give Tomcat a run for its money. Netscape browser became SeaMonkey, then Mozilla, then Phoenix was spun off which became Firebird, which became Firefox. So the Netscape browser is still kind of around. You are probably using a little bit of it right now!

startup idea: eFail....or iFail (1)

Tablizer (95088) | about 2 years ago | (#39751117)

For a startup idea, make a website that makes it easy to bet against companies one feels will kiss the shark fairly soon. Reverse investing. eTrade in reverse.

I know there are already ways to make bets against companies using stock "puts" etc., but they are tricky for the average Joe because they are designed for institutional and expert investors. Make it easy and safe for consumers, and I'll be an early customer.

You hear that, Microsoft and Facebook?

Re:startup idea: eFail....or iFail (0)

Anonymous Coward | about 2 years ago | (#39751243)

Shorting a stock is not hard. Not much harder then buying one. If you can't figure out how to do that, then you probably shouldn't be betting on or against companies at all.

Re:startup idea: eFail....or iFail (0)

Anonymous Coward | about 2 years ago | (#39751257)

You already said it with "puts". Shorting stock is even less "tricky".

Startup Culture is rancid (0)

Anonymous Coward | about 2 years ago | (#39751143)

"Startups these days are focused, driven, and efficient, creating products that people actually use."

I'm not entirely sure this is true. Just take a walk through downtown Palo Alto, and you'll find a social networking startup on every corner. How many people use them?
I...see precious little evidence that most of these social networking/ad revenue companies will amount to anything other than (at most) getting bought by a bigger company. Besides, I'm not even sure what most of these companies actually do. Their mission statements are written in such dense business jargon that, unless you are versed in start-up lingo, there's no way any half way intelligent person can even figure out what they do.

"social commerce software-as-a-service solutions"-all right, go ahead and try to guess what the fuck that means.

Not particularly different... (3, Insightful)

Junta (36770) | about 2 years ago | (#39751149)

Startups these days are focused, driven, and efficient, creating products that people actually use.

Having users with no business plan to monetize that popularity isn't particularly different than having no users at all... I think the same held true in the late 90s, there was the interest and the users, but a lack of sold plans to translate that into something economically feasible.

What else is left these days? (0)

Anonymous Coward | about 2 years ago | (#39751197)

For the United States, that is. Is there anything left that the United States is a world leader in as far as its domestic economy is concerned?

We have chosen to build an empire, and pin it on slaving electrons for mankind and military might. (OK, producing services based utterly and irrevocably on computers...) As opposed to doing, for lack of a better term, "real" things materially.

Of course there will be bubbles. They will rise and burst, each rise and each burst higher, until the decline and fall of the great American Empire. Until there is nothing left of the country.

Re:What else is left these days? (1)

the eric conspiracy (20178) | about 2 years ago | (#39751543)

Uh... I call bullshit on this.

The USA is the world's largest manufacturing nation. We make more stuff than anyone else. China may eventually pass the US, however that's because it has 4x the population. In addition the US share of world manufacturing capability has been relatively constant for decades.

http://business.time.com/2011/03/10/can-china-compete-with-american-manufacturing/ [time.com]

In addition there is starting to be evidence that it's gaining on competitors like China. Labor and energy costs there are rising fast while labor costs are flat and energy costs are falling in the US due to domestic oil and gas production and advances in automation.

So don't let BS handwringing from political pundits fog the issue. The facts are out there.

Big deal. (4, Insightful)

superdave80 (1226592) | about 2 years ago | (#39751223)

...creating products that people actually use.

So? People using your product isn't the point of business. Making a profit off of people using your product is the point. That's why we had the dot-com bubble: nobody could make any money off of this new-fangled internet thingy.

Re:Big deal. (1)

StikyPad (445176) | about 2 years ago | (#39751707)

Well, I wouldn't say nobody [amazon.com] , but the SNR was very low at the time.

Re:Big deal. (1)

timeOday (582209) | about 2 years ago | (#39752101)

Actually, at the time the bubble burst, Amazon had been in business for years (ever since starting in 1994) without ever turning a profit. [wikipedia.org] It took them over 7 years to start turning a quarterly profit!

Amazon's initial business plan was unusual. The company did not expect a profit for four to five years. Its "slow" growth provoked stockholder complaints that the company was not reaching profitability fast enough. When the dot-com bubble burst, and many e-companies went out of business, Amazon persevered, and finally turned its first profit in the fourth quarter of 2001: $5 million or 1Â per share, on revenues of more than $1 billion. The profit, although it was modest, served to demonstrate that the business model could be profitable.

Amazon must be the single most tempting precedent for new companies to "please let us burn startup funding for half a decade before turning a profit."

Re:Big deal. (0)

Anonymous Coward | more than 2 years ago | (#39753725)

Bezos was intentionally not showing a profit. He said on Charlie Rose on one episode that Amazon made the mistake of showing his first profit in Amazon's early years way earlier than he wanted.

Re:Big deal. (1)

LordLucless (582312) | more than 2 years ago | (#39754029)

I think Google would probably be even bigger. IIRC, Google was quite big in search for quite a while before they discovered they were an advertising company.

Replacement for advertising-based startups (3, Insightful)

istartedi (132515) | about 2 years ago | (#39751279)

Any startup where advertising is the stated (or likely will become) the source of revenue, could be replaced. With what? With something like networks (in the old sense, as in TV networks) where "producers" create "shows" that run on the network. In other words, "Facebook, brought to you on NBC Internet by Sudso. Sudso. The soap that cleans your mind".

The current process of angels, VCs, etc makes a lot of money for some people. OTOH, it seems rather inefficient compared to the old network model. If Groupon were a gameshow, it would make money for the network, give away some prizes, and eventually get cancelled when people lose interest. Ditto for myspace. The whole process of taking these shows through early rounds all the way to IPO is just way too cumbersome.

As an added bonus, the "shows" might have a greater incentive to support things such as porting your data to the next "show", whereas in our current realm they have an interest in making their site "sticky".

I don't think privacy would be any better or any worse.

This model faces an uphill battle in terms of recruitment, I think. Producers expect the IPO pot of gold at the end of the rainbow. A studio job won't lure the big talent as easily.

I could be waaaay off the mark of course. Just idle speculation on a Friday afternoon...

Maybe... (1)

the eric conspiracy (20178) | about 2 years ago | (#39751367)

There are some pockets of excess certainly. However that's true in any stock market that isn't actually in crash mode. Look at Chipolte for example - the valuation there is beyond reason.

However it isn't a full fledged bubble until the excesses have the Mom and Pop investors chasing the market. That isn't happening.

Re:Maybe... (0)

Anonymous Coward | more than 2 years ago | (#39753775)

>However it isn't a full fledged bubble until the excesses have the Mom and Pop investors chasing the market. That isn't happening.

The DOW is only 900 or so points away from it's historical high, which was established just before the housing crash. It's already higher than during the dot bubble.

The NASDAQ is at a level that it was 6 months before the dot bomb hit, but for context, it went from 3000 to 5000 in that same amount of time, so that's not as indicative as the numbers draw it.

Internet bubble? (0)

Anonymous Coward | about 2 years ago | (#39751423)

We now know from hindsight the internet bubble, claims of what could happen on the internet was both grossly understated and 10 years ahead of its time. Had the Fed not interfered with the free market by controlling liquidity surrounding the free market stock frenzy, we would have seen just as many bankruptcies and perhaps more paycheck folks invest and loose 100% of their money. But we would also have seen broadband to every door arrive in 2005-7 rather than "not yet" in 2012.

Why is the government allowed to pick winners and losers when they are so bad at it? When people buy 1000 lottery tickets in 1999 on wild-ass ideas, if they are allowed to pay out, we get lit fiber rather than dark. We get webvan.com still with all its vans for sale in Fontana, CA because they were still at least 3 years ahead of the tech, but we also get video on demand to the house in 2007, which we only now have only in Fios connected houses, not everywhere.

We also needed to have deregulated airwaves so we could have ELTE way back in 2007 as well.

GFL wishing. Regulatory, legal and reverse incentive by government is stronger than ever, and they are crippling liquidity during a liquidity crisis too.

NEVER trust the government. NEVER trust a politician who promises to "help you" with government resources.

You WILL suffer.

JJ

Wrong bubble (1)

gmuslera (3436) | about 2 years ago | (#39751465)

Probably some of the reasons of such a big investment went thru some key patents. Thats the bubble that must be feared, the one that big capitals will try to keep growing at all cost, and that will sink us all either by bursting, or by not doing it.

Not this crap again (0)

Hentes (2461350) | about 2 years ago | (#39751581)

There was an enormous hype predicting the fall of web2.0 in 2008, yet it was one of the few sectors that managed to grow in the crisis. Stop publishing these fake stories by sour speculants.

Wow! Instagram (2)

stevenfuzz (2510476) | about 2 years ago | (#39751731)

How is instagram worth more than half the countries in this world? I mean, from a utilitarian perspective, Facebook is worth less to humans than a good shit. It's scary to me that meaningless code, completely useless in reality, absolutely un-groundbreaking and without merit, could be worth 1 billion dollars. What a ridiculous waste of money.

We live in a fraud driven, violently unstable.. (3, Insightful)

Paracelcus (151056) | about 2 years ago | (#39752119)

We live in a fraud driven, violently unstable economy, a massive Ponzi scheme masquerading as an economic model!
It doesn't work, it can't work!
It WILL destroy itself.

it's the economy, stupid (1)

jsepeta (412566) | more than 2 years ago | (#39752489)

if the economy didn't suck so hard, maybe we'd be hard at work and not logging so many hours into facebook and twitter

Tech Bubble? (0)

Anonymous Coward | more than 2 years ago | (#39752837)

Not a "Tech" bubble, an "Instagram" bubble.

another minute (1)

MrKaos (858439) | more than 2 years ago | (#39753057)

another sucker.

Now send more money!

What? (2)

slasho81 (455509) | more than 2 years ago | (#39753107)

Startups these days are focused, driven, and efficient, creating products that people actually use.

Right...

It's a Facebook Stock price scam (2, Interesting)

Anonymous Coward | more than 2 years ago | (#39753429)

Look, Facebook is not buying Instagram with only cash, it's a cash/stock swap deal and likely mostly stock. Basically Instagram is swapping its worthless/worth little paper for Facebook paper which is equally worthless ($60 billion my ass).

If Instagram thought it was going to be mega then it wouldn't be swapping its own stock for Facebooks because it wouldn't benefit from that. Instead the deal is like this:

Facebook to Instagram: we buy you for some ridiculous sum. We pay you in shares, and you pretend that those shares are the real inflated value we say they are. So we say we've bought you for $1 billion, you talk like we really gave you $1 billion when we actually just gave you Facebook paper, that way people will think that Facebook paper is worth the $1 billion ready for the IPO. If you do it convincingly enough you can cash out soon after the IPO and take real money.

That's about the measure of it, it's a pure stock price pumping scam just before Facebooks IPO.

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