One of my favourite things to do when I have a few minutes to spare is to pull out my iPhone 4 and begin sifting through article after article (if you want a great reliable reader that works for your browser and phone, check out Feedly). The amount of information available at your fingertips these days is amazing but it seems to me like many investors are not keeping up to speed. Hear me out.
Each and everyday I read at least 3 articles about up-and-coming tech start-ups; most of which exist in the realm of social media. The question becomes: when is enough, enough?
I was hardly old enough at the time of the first tech-bubble burst to keep up with the news and follow industry trends but even so, it seems that history may be repeating itself, as it often does.
There are a number of social media powerhouses in the arena currently such as Twitter and Facebook and, despite ridiculous valuations, their success is virtually assured. Facebook is now generating heaps of cash and will continue to pursue additional means of doing so, and Twitter has now amassed such a large user-base that it is only a matter of time before they start printing money as well. Not all websites can enjoy this level of success, however.
Each day, Tech Crunch publishes a number of articles describing tech start-ups (mostly just social media-based websites) and their ability to obtain funding. It baffles me how it seems that every entrepreneur that creates a website seems to be able to obtain vast amounts of funding. There is a finite demand for photo-sharing websites/apps for example, and yet it seems that each day 3 more websites crop up that offer the same benefits.
Many of these new websites/services/apps are able to obtain many millions of dollars in funding and I can only begin to wonder how they will ever be able to make money. Even if they do enjoy some popularity, it will likely be short-lived, leaving investors with empty pockets. It is only a matter of time before this ever-growing tech bubble bursts.
A recent article from Tech Crunch points out that Facebook and Twitter are the exception, not the rule. The reality is that most start-ups will fail sooner or later. Chances are it will be sooner rather than later, especially when considering social media sites which are almost entirely driven by short-term popularity.
Social media was “the new thing” but it is not so new anymore. Those that have already established their presence will continue to thrive. New entrants will face increasing competition, just as in any other maturing industry or marketspace. I think investors easily see this with other industries but seem to turn a blind eye when it involves new technologies and social media. As Sarah Lacy points out in the Tech Crunch article, there will be a number of great new social media start-ups down the road, but they will be the exception, not the rule.
But what do you think? Do you see a tech bubble forming? If so, when do you think it will pop?