Dot Bomb Part II
Wednesday, May 23, 2007 | Wayne MulliganRating:
When you’ve been around a particular sector long enough, you start to get a real feel for how it works.You know the players, how they move, and what to look for to let you know what’s going to happen next. It’s like watching a chess board develop. You eventually know what move each player is going to make based on how the board is set up.
Without sounding arrogant, I sort of feel that way about the Internet sector – I know the players, I know how they move and most importantly, what to look for when “taking the temperature” of the space.
And right now I feel like this sector has a high-grade fever and is on its way to the hospital … again!
It seems like 2000 all over again – thanks to technology behemoths such as Google (Nasdaq: GOOG), Yahoo! (Nasdaq: YHOO) and Microsoft (Nasdaq: MSFT), the Nasdaq is once again rising at a rapid pace. One could argue that business is so good that it’s justified this time around, but I beg to differ.
If it weren’t for the mega-mergers occurring in this space, there really wouldn’t be much to talk about in the way of bottom line profit growth (Google aside).
The other thing we’re seeing is the IPO market heating up again. Not to say that it’s reaching the proportions it was back in the late 90’s, but based on the fact that most of the companies on deck to go public are showing less revenue than the companies from last year, it’s easy to compare this period to the dot-bomb days.
We’re also seeing the Venture Capital market heating up again with an increasing amount of money flowing into seed-stage start-ups with little more than a product prototype.
Initial rounds of funding are also getting bigger, as Michael Arrington from TechCrunch (www.techcrunch.com) so eloquently pointed out in a recent blog post.
If these signs weren’t enough to make you close your check book and not invest in another internet company for a while, then this might push you over the edge:
People are once again bidding 6 – 7 figure amounts for domain names (e.g. Christianrock.com) in an effort to own “real estate” on the Internet.
And I truly love the mantra when I raise these concerns to investors in this space. They all say the same thing: “It’s different this time!”
The thing many folks have yet to realize is that it’s never different – people and human nature are never different, and that’s what the market is – it’s people.
Companies may have different business models, technologies may become more advanced, but greed and fear are what move the markets on a daily basis, and those two emotions never change.
So I’m putting it out there loud and clear and for all to read – there will be a correction in the internet space. I doubt there will be an all-out crash like last time, mainly due to the fact that the advertising models of today are much more sustainable than in previous years, but we’ll definitely see a pullback in stock valuations, IPOs and VC deals in the near future.
So be careful out there! Don’t take any unnecessary risks.
And this is coming from someone who owns and operates companies in this space and is banking on the longevity of this sector. What differentiates me from the crowd is that I’m not doing this to become immediately wealthy; I’m doing it because I want to build products and services that solve real problems for real people.
If money becomes a byproduct of that, then I’m a happy camper.
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Wayne Mulligan
Contributing Editor
The Tycoon Report
