Bubble 2.0? Not!: 3 Take-Aways

If you’ve been following the fortunes of VWware (VMW), a Silicon Valley software maker (though a subsidiary of EMC on the East Coast), you know the company offered 10% of its equity at $29 per share on August 14. Shares closed at $51 that first day and now sit at $68.49, for a market cap of $25.6B.

Technology start-ups are certainly back in vogue. YouTube went for $1.65B in Google shares last year. VC’s invested nearly $1 billion in information-services companies in Q2 2007, up 50% from the same period in 2006.

So, is this the start of something old? Are we sitting on the verge of Bubble 2.0?

The August 16 Economist says positively not--the chances of Bubble 2.0, let alone Bust 2.0, are mercifully slim. Here are their 3 take-aways:

1. VMWare was able to list on the stockmarket in the teeth of a financial gale only because it actually has a business. The company dominates the market for virtualisation programs, which enable one server to act as many, allowing data centres to run much more efficiently. In the first half of 2007 VMware's revenue and net income doubled, reaching $556m and $75m respectively.

2. The financing needs for new technology business are much different then in Bubble 1.0. Compared with 1999, developing a new web service is cheap: as low as $100,000 compared with a few million back then, thanks to low-cost hardware, free open-source software, powerful programming tools and new marketing techniques. Some venture capitalists are even wondering whether it is worth bothering with such small investments.

3. The same reasons that make a bubble unlikely also minimise the risk of a bust. Since the costs of building new technology services are still coming down, people will just keep coming up with new ones—even if they do not make a lot of money and reach only a small audience. Jargon-lovers would doubtless say that the Web 2.0 era has a “long tail”; even if the economics of start-ups do not resemble the dotcom years, the language unfortunately does.

Posted by Entrepreneur Generations

Tweet