What Tech Bubble? Internet Companies May Actually Be UNDER-Valued.

By: EW News Desk Team   Date: 22 June 2011

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EW News Desk Team

Always on the look out for the latest news to monitor the state of the world economy.

EconomyWatch, News Desk Team

 

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22 June 2011

Amidst growing concern over an inevitable new technology bubble burst, venture capitalist Ben Horowitz of Andreessen Horowitz has come out in the Economist recently to argue that not only were we NOT in a technology bubble, but internet companies may actually still have potential for even more significant growth in their valuations.

Related: New Bubble in Silicon Valley???

Related: Silicon Valley Bubble Warning: From the Bubble-Blower-in-Chief

Horowitz utilises historical technology trends to emphasise why he feels that the major adoption wave for the Internet technology platform would only occur in the next eight years.

Major technology cycles tend to be around 25 years long with the bulk of the purchases occurring in the last five-to-ten years. This has to do with adoption rates; this period seems about right for the oldest cohorts (less likely to adopt new technologies) to die off and for younger cohorts (quickest to use new technologies) to enter the market.

Credit: Business Insider

Comparing the Internet’s current situation to that of the first dot-com bubble more than ten years ago, Horowitz argued that “many more internet businesses will work today than did the last time around.”

His three main assertions were:

1. The cost of running an Internet application is a hundred times cheaper than it was in 2000

2. Programmers’ productivity levels are ten times higher

3. The market is more than fifty times larger now and will double in size again over the next five years

Emerging markets, and in particularly Asia, will be the greatest growth avenue for the Internet. As EconomyWatch.com discovered, Facebook co-founder Eduardo Saverin has begun investing in Asian Internet companies since relocating to Singapore nearly two years ago.

Related: Facebook Co-Founder Eduardo Saverin Bets Big on Asian Internet

Nevertheless, Horowitz believes that a technology bubble is bound to happen, though not anytime in the near future.

“Predicting such things is a bit like predicting the end of the world; the prediction will eventually come true, but almost everyone who listens to you in the meanwhile will regret having done so…

A bubble will almost certainly come eventually—that is the nature of human psychology and of markets.

But what is the value of predicting a bubble with no time frame? What does that even mean? If we are approaching a boom and huge growth in technology over the next several years, do you want to miss it due to the eventual bubble? If the true goal of the bubble promoters is simply to encourage caution in investing, when does that advice not apply?

Story From The Economist


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