The $1B Facebook plunked down for Instagram has everyone talking. A lot of pundits are saying this is the peak of the new tech bubble, and it’s all downhill from here when the bubble explodes, just like last time.
For those around for Tech Bubble 1.0 – circa 1995 to 2001 – there are similarities, like a company with zero revenue draws such an absurdly huge valuation. This is on the heels of lofty valuations such as the Facebook IPO itself.
Before jumping on the Bubble Wagon loaded with tulips, here are 8 reasons why this social computing movement isn’t Tech Bubble 2.0.
1) This isn’t the search for the killer app. During Tech Bubble 1.0, that’s all we heard. It’s email. It’s content management. It’s routers and switching. It’s storage. It’s traffic management. It’s security. Every tech company said they had the formula that would take over, and built a biz model around it with hockey-stick growth rates built in, looking to be bought or go public. Investors believed them, for a while. By contrast, Instagram doesn’t even have a biz model, though there were people trying to offer them one.
2) Mobile is naturally social. A wise mentor once told me during Tech Bubble 1.0 that the web wasn’t a place to go, it was a place to do stuff – if you expected people to return to your site, that is. What Instagram has is heavily engaged mobile users doing stuff, 30M strong and growing rapidly. 1M people downloaded the Android app within the first 12 hours. That kind of momentum is extremely valuable and hard to reproduce, and it’s where Facebook is going. The scary part is by all accounts, they’re just getting started on their mobile roadmap.
3) There’s a very rational, albeit expensive, reasoning here. This is tapping into more than just a plot to take people’s money with shiny expensive objects or a new way of doing things; it’s reaching into people’s natural behavior. Facebook just plugs Instagram into their platform, and people keep using it, and more people get on board. Instead of trying to recreate social photo sharing, just buy it and move forward. Facebook is flush with cash and can do this, and it’s a low risk maneuver since nobody questions the popularity of Instagram. There’s also the secondary effect of keeping Instagram out of hostile hands.
4) Visual is the new black. There are plenty of hostile hands groping around visual apps like Instagram right now, with Pinterest probably being next up for acquisition. Where Web 1.0 was all about organizing text and PDF documents and music downloads, and Web 2.0 went multimedia and self-published, we’re now in an era where visuals are everything in a transmedia approach. Watch the show Fashion Star: the design airs on the show, the buyers comment, people share on social, and the online store responds – all driven by a shared visual that propagates from TV to web to mobile.
5) The carriers have our money and our attention. Unlike Tech Bubble 1.0, where a big part of things was the race to build up an effective web infrastructure and get people to pay for it, we’re now at a stage where the problems of service and service monetization have been mostly solved. There’s a lot of griping about the cost of unlimited data plans and throttling and LTE buildouts and Wi-Fi offload, but it’s minutia relative to one thing: when asked, people say they will give up a lot of things before they give up mobile service.
6) The investing movement hasn’t made it to Main Street. There are still many doubters on the whole social thing, probably many reading this. During Tech Bubble 1.0, every single person who bought stocks had an idea or two or three on a hot tech stock. When asked about the revenue potential, the answer was usually like “this is a can’t miss”, and people invested because they were afraid of being left out of the wave. Right now, what we’re seeing is a few big IPOs and acquisitions by a few big players. Everyone bought tulips, and until we get there it’s not a bubble.
7) Bubbles don’t burst underwater. When the Tech Bubble 1.0 blew up, it took everything and everyone with it and ended a period of high-flying prosperity. Many firms disappeared, and many others took years to recover. We’ve had one good quarter of NASDAQ index performance and we think we’ve ascended the wall of worry already. Hardly. There is still too much damage built in to housing prices, 401k plans, even jobs to consider this a bubble. These social computing valuations are making a few people rich, but buy and large most ships are still underwater.
8) Joining the social computing movement is easy. The mystique of Tech Bubble 1.0, where an elite crop of people had the tech figured out and controlled the ideas and how to make money, isn’t there. People – lots of people – like making fuzzy, colored photos from their daily experience. My daughter ran into my office with her Instagram stuff last night. It’s in everyone’s hands, and it’s as easy as point, shoot, and share. Bubbles depend on shortages and imbalances, and there just isn’t one here.
While the title suggests this is the next bubble, the article in The Atlantic “It’s Time to Accept the Existence of a Social Media Bubble” has this quote:
But, perhaps the very fact that we’re talking about this bubble means that there’s no bubble at all. “A key characteristic of a bubble is that no one thinks it’s a bubble. If everybody’s upset, it’s a good sign,” said Netscape founder Marc Andreessen last summer when there were murmuring of a bubble.
It’s a great debate. What do you think?