Thinkcorps

Sometimes, I really regret having to leave the Bay Area. Today, I am reassured I made the right choice.

I just read Wired editor Chris Anderson’s column, The New Boom, and it smacks of the same boosterism (which, admittedly, is the reason for Wired’s existence) that spoiled the area in the late 90s, despite his measured reassurances that the current resurgence is not a destructive “bubble”. (disclaimer: I was an editor at Wired/Wired News from 94-98, and admittedly partially responsible for creating bubble1.)

In recent months, the breathtaking ascent of Google has lit a fire under its competitors, which include practically everyone in the online world. The result is all too familiar: seven-figure recruiting packages, snarled traffic on Highway 101, and a general sense that the boom is back.

What gets me about all this, and it may just be a personal prejudice, is the reality distortion field that never fails to be raised once money is on the table. On one hand, everyone is railing against the “bubble” and hailing the virtues of open source, cheap hardware/bandwidth, and techno-ubiquity (the unhalting spread of tools and the knowledge to use them), while the other hand is quietly snapping up investment on the promise of exit strategies, intellectual property and first-mover advantage.

Companies are once again minting millionaires, but venture capitalists are investing less than a fifth of what they were at the 2000 peak. About 50 technology companies went public last year, but more than 300 went public in 1999.

Anderson cites a lowered IPO rate, but let’s compare apples to apples. 1999 was the height of the bubble, not the beginning. So, what was the IPO rate in the early years of the bubble, say 1995? Second, given increased techno-ubiquity, making it easier to birth cool new startups, wouldn’t it be natural to have less investment? You don’t need it like before, plus everyone’s still scratching from their bubble burns. So, again, I don’t buy it.

So how do you justify a boom? All I see is the Yahoo/Google effect: the two companies left standing and strong, for whom it’s easier to buy up good technologies than build themselves.

In this “boom”, you’re either salivating about selling your company to Yahoogle, or you’re an investor looking to pump up a hot little startup so it’s attractive enough to bring Yahoogle a-callin’. Either way, everyone’s banking on winning the lottery and cashing out. Anderson says it himself:

Today, the typical exit strategy is to sell your startup to Yahoo! for a few million, not to maneuver for a rowdy IPO and an appearance on CNBC. Highway 101 is jammed with Prius-driving engineers, not biz-dev guys in Beemers.

Same song. Different lyrics. It’s a buyer’s market, since there’s really only a few companies (Yahoogle, M$) with open wallets. But without really knowing what Yahoogle’s future plans are, and discounting the curves of rising techno-ubiquity and falling costs, which are working against your ability to “own your market/niche” for anything close to the long term, you’re still operating irrationally.

And when you’re operating irrationally, I think that’s fertile ground for a bubble.

In the end, it doesn’t matter what model car you’re driving. You may save a few bucks in a hybrid, but the road signs are all still pointing to Bubbleland.