Tag Archives: economics

Marc Andreesen Finally Calls The Tech Bubble

After months of saying, contrary to all evidence, (like this, this and this) that there was not a tech bubble going on, super-VC Marc Andreesen has finally publicly pulled back from investing because valuations are too high. Duh.

The Myth of the “Job Creator”

A key Republican talking point is that the wealthy are “job creators” and that any tax on these job creators will cause them to fold their cards and go home, hurting the economy in the process. This is clearly ridiculous, and I have challenged before the concept that tax rates diminish incentives to build companies, but here is a great essay from an entrepreneur and investor (a successful one — he is clearly in the 1%) describing how people don’t create jobs, the economy does. And the economy is made up of regular folks — the 99% — who need to buy the products produced by the entrepreneurs. Without a successful consumer class, nobody will be a job creator.

Graphical Look at Federal Deficit

Courtesy NY Times

Democrats Need to Lead, or Lose

S&P downgraded US debt from AAA yesterday, knocking Treasuries from their perch as the safest debt on earth. We will see what happens to yields on Monday, but so far it’s not clear that the markets agree with S&P. After all, this is an agency that had AAA ratings on subprime mortgage-backed securities not that long ago.

But in the meantime, the GOP is using the downgrade to attack Obama, saying “look what happened on his watch.” The president doesn’t deserve all the blame, but I understand why the GOP has seized the downgrade as a bludgeon. And in the same way, democratic operatives are putting the blame on the tea party and its refusal to compromise on deficit cutting.

But you know who isn’t saying anything? Democratic leaders. The White House, Harry Reid, Nancy Pelosi — they are all keeping silent on this. They are trying to be the “adults” and not play the blame game. I appreciate that high-mindedness, but here’s the thing: the game is being played, with or without them. If they stay silent then they just let the GOP control the narrative. You know the Sunday talk shows will be full of Boehner and Cantor and Romney and the gang piling on Obama for the downgrade.

The Democrats have to realize that they are in the middle of a street fight and if they don’t fight back they will lose. And they’ll deserve to lose. If you are going to suck ass at politics, then you shouldn’t be a politician. Regular readers know that I mostly support Democratic policies (with some huge exceptions that I ought to detail one of these days), but I sure don’t support Democratic fecklessness. The Democrats got rolled on the debt ceiling negotiation, and now they are getting rolled on the downgrade. It’s pathetic. Or, to quote a senior democratic official: “if this White House showed a gram of leadership on the debt crisis we could have avoided this historic embarrassment.”

More on the Tech Bubble

One day, two NY Times articles bolstering the bubble hypothesis.

One explicitly describes the bubbly behavior of investing $41 million in photo-sharing startup Color before it even launched its product.

The other describes how some Wall Street broker-dealers with no experience in technology are throwing money at shares in hot private companies. Fast-money Wall Streeters are one step above the shoe shine boy when it comes to bubble indicators.

Yes, It Is A Tech Bubble

We’ve seen lots of talk recently about whether there is another technology bubble going on, with LinkedIn’s super successful IPO, and shares of Facebook, Twitter, et. al. trading on secondary markets at multibillion dollar valuations. I lived through the first dot.com bubble in 1999-2001, and based that experience I am saying right here, categorically and emphatically, that we are definitely in another bubble. I will add some caveats at the end, but listed below are my top reasons for calling this a bubble. Every single thing I list below also happened in 2000, and made rational observers then realize that we were in a bubble. The more things change, the more they stay the same.

A) Insanely high valuations with no reasonable relation to the metrics (revenue, income) of the company (LinkedIn, Groupon)

B) Retail investor hunger for tech stocks. Back in 1999, we were all talking about Joe Kennedy’s famous line: “when you get stock tips from your shoeshine boy, it’s time to sell.” When the public is hungry to invest in a category, it’s a bubble

C) Farcical metrics. In the dot.com era we were supposed to look at eyeballs, not revenues. Now Groupon tells us that we should ignore marketing costs and look at “adjusted consolidated segment operating income

D) The emergence and venture funding of many copycat businesses. How many flash sale or social coupon businesses do people need? And what about Color, which raised $41 million to launch yet another iPhone photo sharing service, and reputedly only shared 5 photos during the iPhone developers conference and had its president leave within months of launch?

E) Especially the emergence and venture funding of narrow vertical copycats. For example, Juice in the City is Groupon for moms, Pawsley is Facebook for dogs, Everloop is Facebook for tweens (who will, by definition, leave as soon as they are old enough to join Facebook), etc. Anyone who lived through the dot.com remembers “vertical portals.” That didn’t work out so well.

F) Society and entertainment figures or kids fresh out of Stanford and Harvard business school as entrepreneurs.  (Juice in the City, Rent the Runway, Ashton Kutcher.)

G) Venture funds you’ve never heard of leading rounds in vertical copycats (Juice in the City funded by HU Investments and Tandem Enterprises)

H) Companies you’ve never heard of buying prime time TV commercials (Peel)

I) Ridiculous and nearly identical company names (Buzzr, Socialzr, Apptizr  etc.)

J) Weekly launching of new “incubators,” in which people, some with limited experience, will mentor new companies in return for some equity (Growlab, Capital Factory). Or one incubator, 500 Startups, that funded two nearly identical companies: StoryTree and Vvall.

K) Putting a tech sheen on non-tech companies so that they can raise money at tech company valuations (The Melt)

L) Features posing as companies. A clever little web widget, even a useful one that gets a lot of users, might not be enough to support a viable company. And starting companies that you know can only succeed by being acquired is a classic bubble move. For example, StumbleUpon, Blippy. Actually, Blippy alone is enough to prove my bubble hypothesis. Only in a bubble could that company have even existed.

Now for the caveats, or counterpoints:

As many have noted, some of these companies, particularly the big ones (LinkedIn, Groupon) are generating real revenues. Back in 2000, revenues were a rare thing. However, I should note that neither LinkedIn nor Groupon are particularly profitable. Neither is Pandora. Twitter still doesn’t really have a revenue model. The random widgets and apps that are raising money? Not so revenuefull.

There are more customers now. With the spread of broadband and smartphones, an online business has a much larger base of potential customers than in 1999. That means that the same capital investment can, theoretically, be spread over a much larger revenue base.

This bubble is focused on consumer-facing internet businesses. Not all tech companies are being lifted by the bubble. Microsoft, Google, Amazon and the ilk at still trading at normal to relatively normal valuations.

The Newspaper of the Future (ie. Now)

The painful decline of the daily city newspaper is well chronicled by now, so much so that there is even an entire website dedicated to watching newspapers die. The causes are myriad (see the footnote below), but they can generally be tied to A) the internet; and B) changing patterns in the consumption of information.

Papers have tried a variety of approaches to counter these trends, with most of these approaches based on changing websites (paid, free, semi-paid!) and cutting costs. Few of these approaches, however, have even touched on content strategy. As regular Thoughtbasket readers know, I firmly believe that content is king.  My thoughts on what city newspapers should do are highly influenced by my reaction to my local news market, San Francisco. SF’s historical daily, The Chronicle is, and always has been, a terrible paper. The Chronicle’s website, SFGate, is even worse than the paper.

My advice is pretty simple: relentless focus on local journalism. Cover city hall, cover local issues, cover local teams. Big parade for Columbus Day? Cover it. District attorney owns a strip club on the side? Cover it. Downtown real estate prices dropping? Cover it. Cut costs by getting rid of all non-local coverage. A city paper doesn’t need any national or world coverage. License a few AP stories to give your readers the big picture basics, but certainly don’t have a Washington bureau. Maybe, if your city is big enough (ie. Chicago, LA and not much else), you have one reporter in DC to cover what your Congressmen do. In the same vein, maybe you have a reporter in your state capital, but purely to cover local issues. Leave broad coverage of the state capital to that city’s paper. If your readers want state, national or world news, they know how to find it: on the internet!

Do people care about local coverage? Absolutely. Think about the old axiom that all politics is local. Because people care a lot more about the pot holes near their homes than they do about Washington DC discussions of foreign aid. In my city, San Francisco, there are not one but TWO new papers that have launched purely to provide deep local coverage. Both are non-profits, it’s true, but they clearly sense a consumer need or they wouldn’t have bothered to raise the money required to launch. And that is in addition to the two local alternative weeklies, one of which has repeatedly (like the two stories summarized here) broken major stories about local politics that the Chronicle has missed. Plus you have AOL’s Patch, which provides hyper-local coverage. Moreover, the old afternoon paper, The Examiner, is still around, although kept alive through some payment deal with the Chronicle. The presence of all these local news sources tells you that people want to read local coverage. The question is why the big legacy local papers, who should own this space, don’t cover it.

Some people say that you can’t make money on local news because good local coverage will eventually cause discomfort to the powerful and wealthy in the community, who will then pull advertising. Certainly a strong local paper will, at some point, have to cause some pain to the city’s power brokers. Since most cities are run by a few wealthy families, a couple of businesses, and real estate interests, everybody knows what the sensitivities are. But it’s exactly those sensitivities – corrupt politicians, incompetent civil servants, venal and debauched businessmen – that readers crave. Readers want to know the truth about the powerful, and as long as a paper speaks that truth, it will have readers. And if a paper has readers, there will always be advertisers ready to pay to reach those readers.

Footnote with more specific causes of newspaper decline:

  • Craigslist
  • The end of the local department store
  • Decreased public acceptance of journalistic “authority”
  • Family dynasties seeking cash instead of a legacy (hello Bancrofts)
  • A generation that prefers screens to paper
  • Lower margins for car dealers

More on Microsoft-Skype (Microskype?)

The NY Times did a nice summary today of what analysts are saying about the Microsoft/Skype deal. And I don’t think it’s nice just because it confirms a lot of what I said yesterday. I think it’s nice because the author does a good job of quickly capturing and explaining a variety of viewpoints.

FYI, if you are over your 20 article limit on the Times, just clear your cookies. Bing, got more Times!

How Free Markets Should Work

If you really believe in the free market, you don’t think governments should bail out private entities. The whole essence of free marketeerism is the belief that markets will most efficiently allocate resources. Econ 101, and all that.

So why are so many “conservatives” defending too big to fail banks and pushing for Iceland to pay off investors in its private banks? Check out my friends at Baseline Scenario here and here for more investigation and analysis.

John Boehner Can Be A Hero

John Boehner has a choice: he can lead the Republicans, or he can save the country. He can’t do both.

The vote on the recent budget deal showed that compromises won’t get votes from tea party Republicans. Fifty-nine Republicans voted no on the agreement, and Boehner had to team up with Democrats to get something passed. Pundits are discussing whether Boehner will move right to get a unified Republican caucus. He’ll have to if a unified Republican caucus is his goal.

But Boehner’s goal should not be keeping his party together; it should be fixing the country. Instead, of moving right to pass “Republican” bills that will get vetoed by the President, what he should do is move left and pass meaningful reform with strong bipartisan support. Boehner can team regular (non-tea party) Republicans with conservative Democrats to come up with a common sense approach to solving our fiscal problems. America is a centrist country and Boehner has a chance to create a centrist solution.

The reality is that everybody knows the logical way to solve our debt problem. We need cuts in all spending: discretionary, military and entitlements, coupled with revenue increases. The debt is too big for either spending cuts or tax increases alone to solve the problem. We also need to control health care costs, which are driving Medicare and Medicaid to such extreme levels.

So stop jerking around with politics and start solving the problem. Boehner can lead the charge, and be a hero, if he is willing to walk away from his extreme fringe. He just needs to be less of a Republican and more of an American.

By the way, there is a similar situation in the Senate, with Tom Coburn in the bipartisan gang of six fighting with legendary douchebag Grover Norquist over tax increases.

Grover Norquist: Pompous Douche