This is Probably a Tech Bubble. Adjust Expectations Accordingly. - In House
In House - The FindLaw Corporate Counsel Blog

This is Probably a Tech Bubble. Adjust Expectations Accordingly.

Welcome to the calm before the second storm, a sort-of prequel to the next tech bubble burst. Though I'm not the only person calling this before it happens, I did predict that the Kansas City Chiefs, currently sitting at 9-0, would be vastly improved this year (and in my wildest fantasies, a Super Bowl contender). Nostradamus, out.

In all seriousness though, some big social media company just IPO'd yesterday at $26 per share, setting its market value at about $25 billion. The company, commonly known as Twitter, isn't expected to turn a profit for at least a couple of years. And though the shares opened at about $45 per share due to high interest, and spiked to around $50, it's now hanging around at $42.30 per share.

That's not the only insanity pervading people with too much money: an app used for sexting and a money-agnostic scrapbooking social network have each been valued at around $4 billion. Again, none of these companies have turned a profit, nor are they expected to any time soon.

Consumer Startups Overhyped

Ever used SnapChat? Me neither. I installed it last night. For my ten or so friends who have the app, I can send them a picture. It self-destructs. They can send one back. It self-destructs. Obviously, this means just means sexting.

We think it's insane, as does a Washington Post writer and our favorite Silicon Valley blog. So does anyone who values things like scalability and profit. The company does have its positives (massive, youthful customer base), and could easily be expanded to temporary emails (can you imagine the fun Snowden would have with that?), for now, it's a $4 billion sexting app.

Pinterest is a bit less ridiculous. If you've never used it, it's a glorified online social scrapbook. It's great for planning vacations, making wish lists, or scrapbooking a birthday. So far, the company has only dipped the tip of a toe into advertisements. Again, $4 billion-ish.

But Then, There's Non-Consumer Startups

The big danger with consumer apps is this: trends die. (See Zynga, the withering creator of FarmVille.) We could say the same about startups catering to the enterprise and corporate world, but at least those are less subject to flights-of-fancy and overblown evaluations.

Late last month, three non-consumer tech companies had IPOs: RingCentral (an enterprise VOIP solution), Pattern Energy (cleantech), and Violin Memory (enterprise storage).

RingCentral boomed, Pattern fluttered slightly upward, and Violin plummeted, reports the Mercury News. RingCentral just signed a big deal with AT&T. Conversely, Violin likely didn't fare well because they lost a deal with HP.

The irrational hype isn't there for enterprise tech companies, like it is for consumer-targeted companies.

Investors' Reactions

Big shot investor, and modern browser inventor Marc Andreessen's venture firm Andreessen Horowitz, which invested in Facebook, Pinterest, and many other consumer-targeted startups, is now focusing its attention on enterprise companies, because they predict a big shift to mobile and the cloud for corporations, as well as possibly government agencies, reports The Wall Street Journal.

Maybe the bubble is isolated to consumer start-ups. The big shots moving away from those startups certainly points that way.

And if you're still not convinced, here are a number of signs and parallels between the last bubble and this semi-bubble, including the insane cash-drunk spending of tech companies of late.

Is this a bubble? Am I insane? Will the Kansas City Chiefs win the Super Bowl? Do you have any non-deviant uses for Snapchat? Join the discussion on Facebook at FindLaw for Legal Professionals.

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