The Tech Bubble: This Time It's Different

The financial press shows up at investor conferences and picks up quotes from investors who are busy unloading their investments in social media companies and international search engines: "I don't think this is a bubble at all!" Boy, let's take that unbiased opinion to the bank.

The other refrain is that this group of companies have revenue and an "open business model." The first comment is irrelevant. At the multiples being paid by the IPO investors, the stocks are more than priced for perfection. I believe that an "open business model" means that the company hasn't yet decided on how it will make money. How do the IPO investors make money? Any hiccup in revenue growth or any delay in profitability and they take a shinai across the kneecaps. No, I'd have to say that all of this has an eerie familiarity.

Remember Ask Jeeves from the last Internet bubble? Here's some highlights from the web archive ( source: www.fundinguniverse.com):

• Technology pundits and VC masters-of-the-universe laud Ask Jeeves' natural language search engine, and the ability to use full sentences for queries. Wow! Can a cure for cancer be far behind!


• October 1998 searches per day at 300,000 and said to reach 2,000,000 per day by October. Probably every executive and their relatives had set their computers set to robo-query their site, but who's counting?


• All this leads to July 1999 IPO.


• Third most successful first full day trading in IPO history. Stock price soon hits $190 per share.


• Company begins a spate of acquisitions: Net Effects, Direct Hits...can any reader claim to know what these companies did?


• Revenues increase exponentially from $23,000 in 1997, to $800,000 in 1998, and $22 million in 1999.


• Profitability relative to post-IPO projections is delayed. Losses reach $765 million in 2001.


• Technology gurus and the next vintage of VC masters-of-the-universe declare that "natural language" based search is dead.


• Ask Jeeves goes on life support, and is acquired by Barry Diller company for more than $1 billion.


• Diller declares that Ask Jeeves has the potential to become "one of the great brands on the Internet and beyond."


• NOT!

Perhaps there are some winners among the Class of 2011 IPO Bubble graduates, but what is different about their stories from Ask Jeeves? This year's version of the bubble has the additional complexity of foreign issuers registering in multiple markets, deceiving their own auditors, and the opiate of growing foreign markets for growth-strapped investors.