The inevitable tech bubble and why it’s necessary

Boom and bust, then boom again, an never ending cycle it seems. We have watched this play out over the years in all kinds of businesses. From real estate to stock market we have seen a climb into the good times, sometimes slowly and sometimes quickly; and then it comes crashing down around us.

Compared to other industries and businesses that have followed this cycle for as long as we can remember the business of technology is still in its youth, and even younger is the business of the Internet.

Even with its youthfulness we have already seen one of those periods of boom and bust, as anyone who remembers the Dot Com crash of March 2000 can attest to; but unlike the recovery period of its brethren businesses something even better was waiting in the wings.

With businesses like real estate or the brokerages of Wall Street the boom and bust cycles never really change. During the boom the rich get richer and during the bust the poor get poorer and we carry on just as before, nothing is improved from the endless cycle.

The same can’t be said of the tech bubble bursting in March of 2000. If anything the bursting of that bubble could almost be looked upon as the labor pains of a new and better way of using the Internet. It was out of that Dot Com crash that we saw the birth of Web 2.0 and things like the concept of social media, even though the jury is still out on whether social media is just another way of saying marketing for a new generation.

Ever since the term Web 2.0 was first coined by Tim O’Reilly in late 2004 we have seen massive changes occur in our society that can be directly attributed to this new way of using the Web and the tools that make sharing information something everyone can do.

We have seen the rise, and domination, of web services like blogging, Facebook, Twitter and easy video sharing thanks to the proliferation of things like smartphones. At the same time there has been an increasing number of people, very smart people, who believe that we are either headed into, or are already in a new tech bubble.

Wherein with the first Dot Com era company valuation might have been in the ten, or hundreds of millions of dollars our current bubble is seeing companies being valued ate multiple of billions of dollars and no-one is blinking an eye. Facebook is valued at northward of $70 Billion and doesn’t look to be slowing down. Twitter is said to have a valuation of $8 to $10 Billion and this is without having any real discernible business model.

Then there is GroupOn who apparently is in IPO discussions with a valuation of around $25 Billion, an this after turning down a buy-out offer from Google for $6 Billion.

These are fantastical numbers and they are spreading though the tech world like a steamroller with no end in sight it would seem, except there is, at least some people think there is and that when this party ends it won’t be pretty which has venture capitalists and other investors worried.

I, on the other hand am looking forward to seeing this bubble burst. Sure people are going to get hurt just as they did after the Dot Com crash but we need to look beyond that period and what will come afterwards.

We are in the same sort of period of stagnation that we saw in the lead up to the Dot Com crash. Where things like blogging and Facebook rose out of the ashes of that period and forever changed our society we are also seeing more of the same old thing being pumped out as buy-out fodder for larger companies.

What changes we are seeing at this point of all time high valuations is not even evolutionary let alone revolutionary. Blogging was revolutionary because it provided a larger number of people with a way to communication almost instantaneously. Facebook and Twitter were revolutionary because it allowed every person with any kind of access to the Web with instantaneous communication – the kind of communication and information sharing that changes society.

Anything else we are doing is just minor offshoots of those things hoping that they will be low lying enough to get picked and make their fortunes, only to turn around and do exactly the same thing again.

If we are in a bubble, and I hope we are, then we should be looking forward to, and planning for, the day it actually bursts because as with the phoenix called Web 2.0 that arose out of the Dot Com crash we may see a whole new – and revolutionary – web rise out of this bubble.

What this child of our tech bubble will look like one can only guess but if the tech past is any indication the bursting of this tech bubble could be the best thing to happen.