There Is No Internet Bubble (And There Won’t Ever Be)

March 20th, 2008 | Categories: financing, launch, markets, off topic, trends

The blogosphere is once again abuzz with “bubble” speculation. This recurring theme tends to pop its head into the blog world every few months. This time though, many are anxious. Some are convinced that the inevitable US recession will stifle innovation and steer the web into some sort of temporary holding cell. This is definitely not the case. In fact, the Internet is headed to more prosperous times in an era where innovation and development will only accelerate.

My first question to those who think we are in a bubble is this: why do you think we’re in a bubble? To be honest, I haven’t seen many ridiculous fundings (Facebook aside), nor a rash of Internet IPOs. A frenzy of unsubstantiated capital infusions forms the basis for any bubble. The subsequent lack of liquidity ignites a sell-off, depreciating valuations. This was the case in the first and only Internet bubble. Greedy VCs, armed with the belief that advertising would pave the road to riches, invested in any and every company with an enticing .com name. We all know the outcome of this story.

The current Internet landscape looks much different. Information is prevalent and infrastructure developments have changed the game. The capital markets have also changed. You no longer need a million dollars to start a company. In order words, the key contributing factor to any bubble has been negated to a large degree.

An Internet start-up can be launched at no cost, assuming human labour is discounted and a computer and Internet connection are readily available. Any given Internet user can leverage open source software and/or free tools. Furthermore, widespread documentation and education are available at no cost. This equates to minimal barriers to entry.

The significance is that anyone can launch a start-up at any time, on any budget, and iterate quickly. The information and tools are available and the cost is negligible. Time is the only real variable. All of these factors lead to a significant decrease in the probability of a bubble as raising capital no longer becomes an issue in many cases.

Note: I am speaking in general terms. Every start-up situation will be different. Having said that, the underlying factors remain the same.

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