Tech Bubble? Wake Up, that’s the way it works

I think the media hypes any new tech product or service life cycle as a bubble.  It makes a good headline. (Note: “The new tech bubble” headline on the cover of The Economist.)  But is there really such a thing as a tech bubble?

 Bubbles that Burst? Not so fast!

Remember the .com bubble, the wireless bubble, and the mobile bubble?  Yes, they were all things that people had to pursue and paid inflated prices to get, but supply and demand was the driving force, not a bubble.  Now more than ever we use .com sites, wireless devices, and our mobile phones. 

Everyone wanted in on the latest .com company that was going to be the next Amazon or eBay – there was demand, and the demand drove the price.  When the thousands of companies did not have results, the money went away, the same way it has for hundreds of years on millions of other products/services that did not work.

It’s All About Supply and Demand

Is there an iPad bubble because I have to wait two months for one or because the price is twice the retail cost online?  Of course not, it is the natural lifecycle for this type of product.  Some products shine brighter and don’t burn as long as others, but that does not make them a bubble.

I am an IT consultant and not an economist.  Some economists will argue the Economic Bubble theory, and I will let them debate that.  When it comes to tech bubbles, I get it – it is supply and demand.  When venture capital firms see opportunities, they will invest in the technologies to realize those opportunities.  They can flood equity into a tech sector seeking short- and long-term gains.  This increases the demand and, in turn, drives additional firms (more supply) to provide equivalent services.   

Social applications hold the current bubble label.  Facebook has proven that they can make money selling ads to eyeballs (a model proven by many before them, see Google).  Now investors want to capitalize on the social network model, therefore increasing the demand for social IT providers by flooding the sector with cash.  Buyers beware – dollars for ads is easy, but there is currently no proven ROI for social programs.  There will be; it makes sense that a friend telling me a product is great is more important than salesmen telling me it is great.  But there will be a vetting period.  Lots of ideas will come and go. The right money will land with the providers who provide a handsome return, and the wrong money will be shifted to the next great idea…which may not be IT-related.

The Next Bubble?

Here is a tip…the next bubble headline for IT will be about educational applications.  The storm is brewing, and investors have a keen eye to a sector which is in need of a technology overhaul – and where they can make a return.

What do you think the next bubble headline will be?