Did we learn nothing from the dotcom burst?

The scariest, indeed the defining, aspect of stock market bubbles is that nobody sees them coming. If we saw them coming, the prices wouldn’t rise any higher than the companies involved were actually worth, and there’d be no bubble. In hindsight, of course, bubbles are incredibly obvious, and everyone and their dog can point to them and recite a litany of reasons why they were bound to happen. Yet it’s very hard to distinguish bubbles from true organic stock growth on a going-forward basis. For instance, the advent of computing looked for all purposes like a bubble — oh look at this newfangled technology, it can’t hardly be as revolutionary as they claim it is. But of course, it was even more revolutionary than anyone except scifi authors had anticipated, and companies like IBM, Intel, Microsoft, et al, all minted their own billionaires off it.

The dotcom bubble seemed to most people to be the next revolutionary stage in computing. It would be even more groundbreaking, and mint even more billionaires, than the original computing revolution. Of course, the Achilles heel was that very few people actually knew how to monetize these new dotcom websites. The ideas were grandiose. The business reality simply wasn’t there. I sometimes feel that we failed to learn the lessons of the past dotcom bubble, and that we’re currently in another one. After all, the vicious thing about bubbles is that no one can see them coming, not even when they’ve already happened before.

How do sites like Facebook, MySpace, Digg, and YouTube justify their valuations? They have lots of eyeballs, sure, but the monetization simply isn’t there. Their sole selling point is their exponential growth, pushing the problem of how to effectively make money off their site into the future; after all, for the present, they can just continue growing, right? Except they can’t grow indefinitely. The addressable market is only so large. They will stagnate. And what will happen to them then?

Face it, online advertising sucks in a multitude of ways. It’s trivial to block (just install the Adblock Plus extension for Firefox*). No other form of advertising can be combated nearly as effectively. Click rates are horrendously low. People using the web have learned to tune it out to a very large degree. It’s just not enough of a revenue stream to sustain the huge valuations of sites like Facebook. $15 billion?! Come on! And Digg? Digg is just terrible now. It’s so overwhelmed by the lowest common denominator that no one takes it seriously. I use it for finding mildly amusing stupid photographs and that’s about it. It’s constantly derided for its low quality advertising that no one clicks on. Can anyone really justify the amount of money it is claimed to be worth? It works out to how many hundreds of dollars per active user?

Forget it. I won’t be investing in any of these companies any time soon. I’ll stick with companies that have actual revenue streams; you know, companies that actually sell products and services. Even though I live and breathe the tech world, I don’t actually own any web stocks. That’s not an oversight. The first dotcom burst burned me, and I don’t want to get caught in a second one. This post is here simply to have something to link back to when/if the second dotcom bubble bursts, as an “I told you so”. I don’t really expect to be able to convince many people that this is another bubble. After all, if it was so obvious, it wouldn’t be one.

* I do note the seeming contradiction in recommending Adblock Plus when I’m running a site that serves up Google Adsense ads. I really don’t mind if you block the ads on this site; thinking otherwise would be hypocritical. I’m not trying to make a profit or make a living off this or anything. I’m simply trying to recoup my hosting bills. So continue using Adblock all you wish. Just, as a courtesy, if you feel like supporting the hosting of this site, maybe turn Adblock off every once in awhile and look for an ad that interests you.

3 Responses to “Did we learn nothing from the dotcom burst?”

  1. Kelly Martin Says:

    Digg has advertising? I hadn’t noticed.

    Seriously, with AdBlock Plus combined with NoScript, the Internet is virtually ad-free. It’s startling when I use IE or someone else’s computer to browse to a site that I go to routinely, to discover that it’s filled with ads.

  2. Cyde Weys Says:

    I know the feeling. Some of the sites I read regularly and consider decent are intolerable on other people’s computers because they’re so damn full of ad. It’s repulsive. I’m only running one ad box on this site and I couldn’t imagine running any more.

  3. Shadey Says:

    I actually didn’t know you had an Ad until you just said :-)