Close Menu
TechCentralTechCentral

    Subscribe to the newsletter

    Get the best South African technology news and analysis delivered to your e-mail inbox every morning.

    Facebook X (Twitter) YouTube LinkedIn
    WhatsApp Facebook X (Twitter) LinkedIn YouTube
    TechCentralTechCentral
    • News

      Starlink to South Africa: ‘We are ready to invest’

      17 June 2025

      Vodacom CEO Joosub bags R71m in pay – but taxman will take a big cut

      17 June 2025

      Major rift opens between Microsoft and OpenAI

      17 June 2025

      South Africa pioneered drone laws a decade ago – now it must catch up

      17 June 2025

      South African AI energy start-up in R32m funding round

      17 June 2025
    • World

      Trump Mobile dials into politics, profit and patriarchy

      17 June 2025

      Samsung plots health data hub to link users and doctors in real time

      17 June 2025

      TechCentral Nexus S0E2: South Africa’s digital battlefield

      16 June 2025

      Yahoo tries to make its mail service relevant again

      13 June 2025

      Qualcomm shows off new chip for AI smart glasses

      11 June 2025
    • In-depth

      Grok promised bias-free chat. Then came the edits

      2 June 2025

      Digital fortress: We go inside JB5, Teraco’s giant new AI-ready data centre

      30 May 2025

      Sam Altman and Jony Ive’s big bet to out-Apple Apple

      22 May 2025

      South Africa unveils big state digital reform programme

      12 May 2025

      Is this the end of Google Search as we know it?

      12 May 2025
    • TCS

      TechCentral Nexus S0E1: Starlink, BEE and a new leader at Vodacom

      8 June 2025

      TCS+ | The future of mobile money, with MTN’s Kagiso Mothibi

      6 June 2025

      TCS+ | AI is more than hype: Workday execs unpack real human impact

      4 June 2025

      TCS | Sentiv, and the story behind the buyout of Altron Nexus

      3 June 2025

      TCS | Signal restored: Unpacking the Blue Label and Cell C turnaround

      28 May 2025
    • Opinion

      Beyond the box: why IT distribution depends on real partnerships

      2 June 2025

      South Africa’s next crisis? Being offline in an AI-driven world

      2 June 2025

      Digital giants boost South African news media – and get blamed for it

      29 May 2025

      Solar panic? The truth about SSEG, fines and municipal rules

      14 April 2025

      Data protection must be crypto industry’s top priority

      9 April 2025
    • Company Hubs
      • Africa Data Centres
      • AfriGIS
      • Altron Digital Business
      • Altron Document Solutions
      • Altron Group
      • Arctic Wolf
      • AvertITD
      • Braintree
      • CallMiner
      • CYBER1 Solutions
      • Digicloud Africa
      • Digimune
      • Domains.co.za
      • ESET
      • Euphoria Telecom
      • Incredible Business
      • iONLINE
      • Iris Network Systems
      • LSD Open
      • NEC XON
      • Network Platforms
      • Next DLP
      • Ovations
      • Paracon
      • Paratus
      • Q-KON
      • SevenC
      • SkyWire
      • Solid8 Technologies
      • Telit Cinterion
      • Tenable
      • Vertiv
      • Videri Digital
      • Wipro
      • Workday
    • Sections
      • AI and machine learning
      • Banking
      • Broadcasting and Media
      • Cloud services
      • Contact centres and CX
      • Cryptocurrencies
      • Education and skills
      • Electronics and hardware
      • Energy and sustainability
      • Enterprise software
      • Fintech
      • Information security
      • Internet and connectivity
      • Internet of Things
      • Investment
      • IT services
      • Lifestyle
      • Motoring
      • Public sector
      • Retail and e-commerce
      • Science
      • SMEs and start-ups
      • Social media
      • Talent and leadership
      • Telecoms
    • Events
    • Advertise
    TechCentralTechCentral
    Home » Alistair Fairweather » Dot bomb 2.0?

    Dot bomb 2.0?

    By Editor11 May 2011
    Twitter LinkedIn Facebook WhatsApp Email Telegram Copy Link
    News Alerts
    WhatsApp

    [By Alistair Fairweather]

    When does a market go from being a “growth sector” to a bubble? As with falling in love, it’s hard to put an exact date on the event. And, just like a love affair, a bubble is marked by growing excitement, lavish spending on the object of one’s affections and an increasing inability to grasp reality.

    Looking at the trend in valuations of Web and technology companies, particularly those based in Silicon Valley, there’s plenty of evidence of irrational ardour. Facebook, now “valued” at over US$80bn, is the most obvious example, but there are dozens of others.

    Groupon is another standout — it refused a $6bn offer from Google last year. Good thing too, since it is now allegedly worth $25bn. Twitter may not be quite the flavour of the hour anymore, but it’s still worth $7,7bn at the last count.

    It’s not just established companies that are rolling in imaginary money. Many new tech firms are reportedly beating away eager venture capitalists with a stick. “Honestly, we weren’t thinking of raising money, but now it’s kind of landed on our lap, we may be open to it,” said Clara Shih, chief executive officer of Hearsay, in an interview with Reuters.

    And note, that’s for a given value of “established”. Twitter is barely five years old and Groupon less than three years old. That said, as with the dot-com bubble, this exuberance is spilling over on to older companies. When you hear that Apple will be the first company in history to be worth not just $1bn but $2 trillion, you have to question whether these are really analysts or horny teenage boys.

    The really striking thing is that all of these valuations, bar Apple’s, are based on private share trades and funding deals. No one really knows how much money Facebook or Groupon makes. We know how much they claim to make but, unlike publicly listed companies, they’re not obliged to submit to independent audits to prove those numbers or to show us the gritty details of their costs and revenues.

    Another sure sign of an impending bubble are the cries of “it’s different this time”. As usual, the excuses sound logical and convincing. These new companies have actual revenue, unlike the dot-com bombs. The venture capital spending isn’t all concentrated in Silicon Valley, three quarters of it has gone to startups outside the US. The Web and e-commerce have matured and gone global. And so on, and so on.

    I’ll admit I have been swept along by the grand romance of it all. Last year I argued that Groupon was right to refuse Google’s offer, and that Facebook might very well be worth $50bn. But the last five months have seen both those companies nearly double in nominal value. At the SXSW tech conference in March 2011, self-made billionaire Barry Diller called these valuations “mathematically insane”. Every valuation announcement since then has proved his point.

    To put things into perspective, let’s look at other companies of a similar “value” to Facebook and Groupon. Is Facebook really worth as much as Unilever, Inbev (the world’s largest brewer) or Royal Bank of Canada? Is it worth $15bn more than Disney, and $9bn more than McDonalds? And is Groupon really worth as much as Hyundai or Heineken?

    If we need any more evidence of a bubble, how about the fact that Microsoft just bought Skype for a modest $8,5bn. Not a bad payout for a company worth $1,9bn just two years ago, not to mention one that currently runs at a loss (and has done so for years). Microsoft is calling it a strategic investment, much like its “strategic” deal with Nokia. Yeah, good luck with that one guys.

    But this bubble — if that’s what it is — has roots far deeper and more serious than a bunch of overconfident geeks with good ideas. Governments around the developed world have pumped hundreds of billions of dollars into the markets at rock bottom rates and that money has to go somewhere. Property is still a bust and most established companies are still recovering but investors still want high returns, so high-tech looks increasingly tempting, despite the obvious risks.

    Although the dot-com bust at the turn of the century seems like a tiddler by comparison to the Great Recession we are still struggling to escape, it had real and lasting consequences. Millions of people lost their jobs, and many people lost their savings. With much of the globe’s growth still on shaky ground, the last thing we need is another bubble. Unfortunately, as any young lover will tell you, the heart wants what it wants.

    • Alistair Fairweather is digital platforms manager at the Mail & Guardian
    • Visit the Mail & Guardian Online, the smart news source
    • Subscribe to our free daily newsletter
    • Follow us on Twitter or on Facebook


    Alistair Fairweather Facebook Google Groupon Microsoft Skype
    Subscribe to TechCentral Subscribe to TechCentral
    Share. Facebook Twitter LinkedIn WhatsApp Telegram Email Copy Link
    Previous ArticleHas Ballmer gone bananas?
    Next Article Full Android Market coming to SA

    Related Posts

    Major rift opens between Microsoft and OpenAI

    17 June 2025

    Meta bets $72-billion on AI – and investors love it

    17 June 2025

    Samsung plots health data hub to link users and doctors in real time

    17 June 2025
    Company News

    Altron: a brand journey, a birthday celebration and a bet on Joburg’s future

    17 June 2025

    7 benefits of social media integration in WordPress

    17 June 2025

    Paratus Zimbabwe and PowerTel strike milestone deal

    17 June 2025
    Opinion

    Beyond the box: why IT distribution depends on real partnerships

    2 June 2025

    South Africa’s next crisis? Being offline in an AI-driven world

    2 June 2025

    Digital giants boost South African news media – and get blamed for it

    29 May 2025

    Subscribe to Updates

    Get the best South African technology news and analysis delivered to your e-mail inbox every morning.

    © 2009 - 2025 NewsCentral Media

    Type above and press Enter to search. Press Esc to cancel.