Is another Tech Bubble about to burst?

Internet DNA Podcast

WeWork's fall from grace, Airbnb rushing to IPO, nobody actually making any money. Who remembers the original crash of 2000 or the mobile phone crash or the bitcoin crash, electric bike crash anyone? We discuss the likelihood and as all good news channels at the moment hypothesise about what may happen

Transcription

(this transcription is written by robots… so don’t be surprised!)

This week we're going to discuss some of that. Another tech level is about suppress. So Dan, are you a betting man? No. If you were a betting man, well odds would you put on this, well, we're in a tech bubble. Is that the bubble about to burst or not? I think actually obviously people hark back to the tech bubbles of 2000 and 2004 which really where tech bubbles and obviously we've had the Bitcoin bubble or the cryptocurrency bubble, which was two years ago. I think this one's much more nuanced. There are companies are absolutely fine and then there are companies where you think, well you obviously most people are focusing on the big six and I think most of them look fine to me. What will happen is those tech companies that are not competitive will struggle because yeah, it's evening out if it like social media. One point there were thousands and thousands of different social media channels and really they're rationalizing down now into three or four and they're probably the long term players now if it talking about the big six, well we're talking about Fang and a few more out may. So Facebook, Amazon, alphabet or Google, eBay, maybe eBay. I mean you'd be talking about Apple there, another one of those super big almost trillion dollar companies. Did you know that? Facebook IPO for 104 billion and they're making money out. They see this is the thing and they will understand it. 70% of tech companies are IPOing and not even making money. They're running at a loss. And so yes, the big guys, the ones that are already public companies, some of them, the ones we just talked about are making money. Almost all of them. I mean not for example, Amazon is still losing money, but that's because they're investing vast amounts of money in it. So Amazon, you could argue is overvalued. But I would say that Facebook and Google, they're making the money and so they don't look like our bubble. Well, they're making the money and all the venture capitalists are looking for the next unicorn, the next Facebook or Google. And so they're investing a lot of money into small startups that are having to grow fast break things. And I'm really not making money and I'm floating. And so to me the reason the bubble burst in 2000 was that venture capitalists and in the end it was Joe public as well because everyone wants to buy to the pie or investing in hotter because everyone's trying to get to be the next [inaudible]. Yeah, because basically it's the wild West. So everyone is [inaudible] staking a claim. And some of those claims I have gold, but most of them not really. I don't know if we are still the wild West. I think we are more of the uh, less wild. Okay, okay. Whatever. But basically all bubbles are created by speculation and generally they're created by speculation because there's an understanding that you can earn more. Bye. Taking risks on a fast growing sector. It started long, long ago. The Dutch did it with two lips. People did it not too long ago with cryptocurrency. People could see scripted currency has real potential. Let's get in, let's get in early. And what happens is that because people are just buying the stocks, the stocks increase and increase. People make money because the stocks increase. More people get suckered into buying more soccer. Then more people start to buy the shares because they rising and rising and rising until at some point the market goes, wait a minute, true that bulbs aren't worth this amount of money. Bitcoin was in 2017 it wasn't it. The interesting thing about that was you couldn't even get your money out. Yeah. But Bitcoin is actually really interesting because it's still got value. The real thing, or we, the cryptocurrency crash was everybody else. I think Bitcoin looked like they're going to be, Oh, the other cryptocurrencies. Yeah. So what will happen is a hundred of them start up, 99% of them fail. And you're left with the ones that survive. I'm sure they were hundreds of auction sites, but eBay survived. Well, that's what I think about the 2000 burst. Is it called? An awful lot of companies that were doing what the big six do now, all fighting for that space, but a bubble burst when suddenly all these companies are trying to float on the stock market and you're at the end of the both credit cycles. So there's lots of money around, but people are trying to invest, they're getting a bit hectic about it and trying to invest. This year you've had a lot, you've had what? Uber, Lyft, Pinterest, Snapchat. Well IPA and none of them make money and all of them have dropped their share prices enormously. Kind of. We work. That's even funnier. Yeah, I was about to say, and we work, so I love his Grotzia splat. Oh well actually he's been having too many parties and private debt. So there one article said, and he has a tiger. It's like, wow, no way your money's going. Then they are losing so much money. That's what makes me cross is that if all of us lonely companies, what liked these venture capitalists backed startups, I mean we wouldn't have to give two hoots about anything. Yeah. But you've got to understand these venture capitalists aren't lunatics. Yeah. I like to think of them as leaders. Yeah. And we do. And when they get it wrong, we all go home. But what they're doing is saying, we think this company is worthwhile. Now you'll know from any business, the hardest part of any business is growing from one person to 50 people. That's the hard bit getting the ball rolling. So what venture capitalist or what that kind of money does is say the only way for this business to work, Netflix for example, is that an itchy scale unnaturally naturally fast. So yeah, we need to have 50 million subscribers for this to work and we can't even start this business with five subscribers because we would lose money so quickly, we would never get going. That's what venture capital is there for. And [inaudible] it's successful in doing that for a lot of companies. You got a great idea. Dragon's den, uh, my favorite program of the week. Yeah. So there's plenty of people that turn up with, I forget the comedy show, you know, Wellington boots for BS, but you know, but there are also some great companies that have really good ideas. It was just making the point that some of the ideas, in fact, I watched the dragons then where someone had got some special products for being able to tick oil out of an oil can into an engine without spilling it all over the car. And Peter Jones exactly. Just walked up, turn the can on its side and put it just to show this is an invention that is a problem that is very particular to you and not being able to turn a can on its side. You haven't done your market research, you would have found that this is not a problem. So all these companies that are backed up by the very nature pretty good anyway, but they're growing very fast. But it doesn't that make you think that there's going to be a busting purple. I mean, look at Abby and B, they're now rushing to float because I think they might be the last minute of 2020 18 careful about going to float. If you are a business, your general aim when you start a company really in the long term is what is your exit strategy? Once you've done all the hard work and built this amazing company, how do you actually make the big money so that you can go and live in Martinique? Yeah, and the way you do that is you do an IPO and what you do is you say to everybody, Hey, here's my company by shares in it. Don't stress the own. Let's say you and I started the company. We do a 50 50 split on the shares. It grows into a really big company and we say, actually what we're going to do is we're going to sell 80% of our shares to the public that will give us, it's 30 million pounds. I'm talking much smaller than the billions that these guys are doing, and then we can share that 30 million in half, 15 minutes in each and go and live in Martinique if that's our dream. That's the exit strategy. So IPO is almost always the way you need to get out because otherwise you're left with a load of shares that you're going to have to sell. They're not publicly limited chairs. They limited chairs. Yeah. But surely the sensible thing to do would be to float because you need the money to invest to make the company better. Well, maybe, but also maybe, well, this is my point. All this money is given to, I hesitate to say young people sometimes they're not that young, but often in the tech industry they are. And in two thousands especially, yeah. The office fit outs for a start with a 500 pound chairs and their voters skating receptionist, that money was not needed. Yeah, but you're a designer, aren't you? Yes. So you're not telling me the images are not important. Surely you're saying that the images are, doesn't matter what the thing looks like. You're not saying that at all. Okay. The roller skates. Hi, I'm [inaudible]. I'm very frugal designer, but one of the, I can't remember who he said, you know, half of success is looking successful. That's that part of having swanky offices and you want people to invest in you. You don't want to be down a back alley with a blinking sign in a sink. Well, I'm not so sure about this guys. You can understand why it got approved and what the point of it is. If you think that the whole point of venture capitalism is to give you the scale and presence, you're a brand designer. Yeah. Presence is important. It's important. Yeah. Yeah. Also, when went crazy back in the 2000 that was good. That came out of it. I mean all these office refits we now have a lot of funky offices. In fact, that's where we work. Came from, isn't it? Yeah, and we also have very good infrastructure because of it. Well not where I live in certain parts of the country. I think we're not going to see her. And look, I'm not an investor, so this is not investment advice and should not be taken for any reason to invest in or not invest in anything. But you can always invest in whatever we do. Just finally decided to set up as a, yeah, and obviously I would recommend anything that we do definitely worth investing in. But so that aside, Oh, I don't think we're going to go into another tech specific crunch. Well, I think that there are certainly a number of high profile companies in tech that's look like that overpriced and they may crash and I think certainly some of these smaller ones, they will crash. If in the credit cycle we start going back into invest as tightening about, it's not so much money around interest rates going up, this money that there's Netflix, Snapchat, everybody else's hemorrhaging, where's that going to come from? I think we will have a few concessions. We will, but not because they have the money. So we work, um, there are 1.5 billion turnover or whatever it was. They were still making a 650 million loss every year. That money is coming from somewhere and if it stops coming then I think there's going to be a few, but what I'm saying is we're talking about a tech bubble crash now. I think there may well be a general, let's call it a mild recession. We're seeing it already. Thompson holidays doesn't go bust because everyone's going on holiday every day. Thompson holidays goes past because people are not going on holiday as much and it was compounded by lots of destinations that they specialized in turned into war zones. Exactly. So lots of reasons why they struggled, but trading conditions are going to get harder. I think the weaker are going to get cold. That's a part of the business cycle as interest rates go up then which have been promised for and they still, yeah, but you can't do that at the moment because everybody would go bust. The reason why we have such historically low interest rates is because we're inventing money. We're lending magic money. We've talked about this before. What quantitative easing is is Zimbabwe light, which is we'll just print more money, more expensive. Everything doesn't really get more expensive. It's just that you need more money to buy it. The thing is actually got the same value. It's just that because there's more money, the each bit of money is worth less. If it's standard economics, you print more money, the money's worth less and therefore you need more of it to buy the same things. That's what inflation is basically you and me, it feels like things have just got more expensive. Yeah, exactly. Because our earnings aren't going up at the same rate as our money's getting. What less value. If the money's devaluing a 10% your earnings are increasing at 5% and you're taking a 5% loss. Maybe year on year. There might be a general recession I think is going to be a big at tech. Wow. Because tech is overrepresented at the moment. It will tend to be more tech companies, but we worked not a tech company. It's a property company. It calls itself a tech company though. Yeah, but it's a property company or you could say, Oh, Tesla. Tesla is a tech company. It makes driverless cars, makes cars, is for a tech company. Yeah, you've got me there. Yeah, so a lot of companies are listed as tech companies when they kind of aren't in the future, there's going to be no difference between a tech and a non tech company because everything, it's going to be tech, so that's going to become quite a blurred line. And when earnings and other things, let's say interest rises to 5% then a lot of that money will go into savings accounts because if you can earn 5% by just sitting your money in a bank account and up in things that might produce three or four might produce 6% earnings. Well why would you do that? Just take the 5% solid. I think a lot of, okay, so here we go. We're going to agree to disagree in this case, but let's say the tech [inaudible] database, it would not be good for a lot of people that lost their jobs. It would not be good for a lot of people. Have quite large egos who were thinking that they were going to go live in Martinique. There's a lot of nice islands being sorted out there. For those people, they wouldn't get those. But in general, is it a good thing? Does the state, right. I think what would be, what will be good is a general understanding that, like you just said, all companies are tech companies. So when we talk about a tech bubble, I've gotta be very careful what we're actually talking about is Amazon actually a retail bubble, not a tech bubble. Is Tesla actually an automotive bubble, not a tech bubble. And if you look at tech companies that are pure play tech companies, their earnings are increasing better than most other sectors. So I think that will be culling the poor companies will fail like they always have done. Obviously. I think the market is reaching a point where those companies that are a little bit on the edge will fail. That edge will move and those companies will fail and people will have less appetite for it because they'll realize that a lot of the tech label is a nonsense. We should actually look at what are they as a business, but I don't think we're headed for like, Oh text doc will crash. They may be a blip [inaudible] some tech stocks crash causes a bit of a panic. Everything drops for a little while, but then the ones that are good will retain, will stay. I think, yeah, Google looks fine to me. Facebook looks fine to me rule great, but then isn't this meant to be quite a few companies do the same thing so there's not monopoly. What we're saying is that with each crash per session, small blip, it gets consolidated to one giant that does it quite well. And is that going to be a problem? And that's the problem with globalization rather than capitalism. I think the problem with capitalism anywhere is monopolies. And normally when it was within a country, you could regulate to say you can't have more than X percent of without having a heavy, heavy regulation. And the problem is is that we've deregulated everything you and the new thing came along called tech and now you've got companies that have just unbelievable power, unbelievable power in the market whose ethics are questionable and certainly for sale and that that is a more worrying thing, but I don't think that's to do with the tech bubble. I think that's every company, if you leave it alone, the biggest companies will completely out-compete the small companies, big farms, outcompete small farms. It's just the way it is. Unless you're an incredibly niche player where you use agility as your shield and sword, you're going to get swallowed up and just the problem with agility is you can only do that a certain size. As soon as you get bigger, you naturally lose some of that agility and then you become available to be out competed by the people who are just 40 times bigger than you and can just out-compete you. So that's an issue with globalization that suddenly you don't have governments able to regulate this because they can just go, well I'm not in your country. I don't live there anymore. That is an issue and deregulation is an issue. Yeah. But deregulation is an issue. And we talked about this in a different episode, which was how do you say, we want these standards but we don't want to spend our whole day interfering with your daily life. So for a bit of a Norwegian model where they say you have to build houses to the standard and how you do it, that's up to you. But this standard is not moveable as always. I'm depressed. Well it makes me laugh and it's not funny situation. For some people that's really terrible and I'm very aware of that. But when I was thinking of sort of the tech bubble bursting and therefore a bit of culling happening, we grouping not so much money around so people are knuckling down and those backwards and starting against, they still got the really good ideas. He reminds me of a thing that my brother said to me about when you drink too much, you kill brain cells. And he, we said, well hopefully it will just kill off the not so good one. Keeping my really good friends house. So actually getting drunk a tickets thing, so I think of it like that be the good brains is still there and they will come up like Phoenix out of the ashes. Yes. Hopefully. I mean there'll be some casual cheese companies that were just caught in the wrong position at the wrong time. Being good in the right situation survived it. Even in business there's a little bit of luck. Yeah, in the right place at the light time. It's like being a musician or an actor or anything. You do it. You need to be seen by the right person at the right time to give you that little boost. It's not always the case, but I'm sure it is in a lot of cases that there are equally good companies, but one just manages it for a certain coincidence. Am I looking more like a soothsayer or something now? Yeah, it's like a great line in a selfish gene. It's not survival of the fittest. It's the survival of the survivors and that Steve, Alicia, that naturally calls out the less competitive and know, even though that competitive environment you've got cold out in may have been a very, very short blip. You know, you couldn't survive it because it was four degrees warmer, but that only lasted for 20,000 years. And actually if you'd managed to go past it, you would have been a great competitive, but you didn't survive so bad luck. It's its function for you systems kind of work in that way. Yeah. I'm very glad that we've gotten around of cycle too. Again, the apocalypse. So extinction. On that note, that's how we're not all doing the extinct the next week and speak. Yes, exactly. Brilliant.

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Dan & Abi work, talk & dream in tech. If you would like to discuss any speaking opportunity contact us.