Photo Asgeirk About 12 years ago I sat in a big hotel meeting room in Hartford and listened to an investment banker tell the CEO of the online pharmacy I was working on that it was worth was many, many times more than its existing brick and mortar operations. An older, lawyer-type turned to me with a what’s-this-world-coming-to look and said, “I can’t believe this, it makes absolutely no sense, it’s a total fantasy”. I chuckled and thought: “You just don’t get it, everything’s changing and you’ve either got to get on board or get left behind.”
Now that I’m a lot closer to his age I realize that we were both right. He was right because it was a fantasy. The online pharmacy still exists, but at nowhere near the valuation it was pegged at back then. I was right because everything did change in, and in ways that we couldn’t imagine at the time. But I was also wrong: no-one was really left behind, unless of course, it was those who made some bad investment decisions. In one way or another we all moved forward.
So when I hear all the bubble talk going on now I end up thinking more about the benefits that came out of the last bubble along with the benefits that might come of the coming one. Take one of my favorite flops of 1999, Boo.com. A high-end online fashion site, it featured a multi-lingual avatar named Miss Boo, who would function as your guide to the world of fashion. At the time I’d never seen anything as daring and audacious. I’d also never seen anything as slow and ponderous as it tried to serve up interactivity to 56k and slower modems. It soon became one of the many stock jokes around the office about sites that reached too far, exceeded their business models or just didn’t weren’t ready for where the world and culture was at. Or, consider the startup I worked with who had the idea of creating a portal that listed out-the-beaten-path resorts with details updated via user comments, ratings and a direct reservation service that if I recall worked via fax (fax? really?).
There’s a lot to hate about bubbles, the complete irrationality of the boom/bust cycle, the enormous financial benefits that go to a chosen worthy, and unworthy, few and the blood on the streets mentality of the marketplace. But bubbles can also be powerful incubators that surface and test ideas that may be ahead of their time. Ideas that in their own time may lack proper technological or cultural underpinning, but once technology and culture catch up, sometimes end up being the answer to questions that we hadn’t thought of yet.
This bubble will be no different. (And yes, it’s a bubble. Face it, if everyone is arguing about whether it’s a bubble of not, then it’s a bubble), (Update: Steve Blank has a great post on this question here). I don’t think it will end in as explosive a decompression as the last one, especially as the global economy is in much worse shape than in 2000. I do think that this bubble is less about a technology disconnect and more about a cultural disconnect than the last one. We’ve got the bandwidth and infrastructure to support much of the startup ideas. The bigger questions that have come up have been around the implications of these ideas around societal and cultural issues such as privacy. And then there’s the business model question. Already we see the cracks in Groupon’s business model, ponder the slowing Facebook’s adoption rate, and wonder how soon Zynga will run out of “’villes” that it can gamify.
What is true is that these companies and others crowding around the IPO feeding trough have pushed innovation that we’ll be working through in the years to come. While I hate the growing drumbeat of “hype finance” I just hope that when the bubble pops it does so as gently as possible, so that when I find myself using the same arguments I did 12 years ago I can at least pretend that I might be half right.