The Second Internet Bubble Overview

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Table of Contents

Introduction
Comparison of the firsts and second internet bubble
Why the second internet bubble is real
The difference between the first and the second internet bubble
Conclusion
Works Cited

Introduction

Internet bubble is the skyrocketing or boom in the various share prices of stocks of various industries especially the social media oriented industries. Due to this misconception, the share prices end up crashing, causing massive losses. A bubble situation occurs when the various market observers discover the rapid and spontaneous increase in value hence rushing to buy as they are convinced there will be even more rises in price value and thus they will be able to make a fortune. This type of buying is on speculation and anticipation rather on the survey that the shares in question are undervalued. As a result, many companies perceived as fast growing become grossly overvalued much more than their actual worth. The situation becomes tragic for many investors and companies when the bubble is said to burst as many of the organization gaining due to the bubble frenzy are hit by the dramatic and rapid falling of share prices and as a result many end up falling. (Wade: 39) Some investors are able to make hefty profits if their companies are bought at the initial stages of the bubble. The first internet bubble was characterized by the rise of market shares of companies with a.com. Companies that were not even performing saw their share prices rise by simply adding the e-prefix to any of their names to give them a modernized sophisticated look, and a.com at the end. (Cole & Hawkins: 12) The escalating rise in value of social media companies has made it imminent that the second internet bubble is on the way, if not already being experienced and having an impact.

Comparison of the firsts and second internet bubble

The second internet bubble has had similar characteristics from the first internet bubble in that during recent times especially 2011, people have become very much interested in technology developed companies especially the social networks and games. The first internet bubble was mainly characterized by the valuations of firms and organizations with a link with internet getting very high beyond the actual valuation as people felt they were sexier, sophisticate and was the way for all, in the embracing of information and technology. The second internet bubble has almost similar characteristics, although there has been more technological advancement like the development of web 2.0 technology. This technology has seen the emergence of the latest internet technologies that have taken the globe by storm, many people feeling they are sexy, better and modern. Any individual left out of the developed and emerging new technologies is viewed as conservative left behind and removed from reality.

You Tube, Face book, my space and twitter have emerged to represent the modern sophisticated market gainers that are viewed as sexier and very convenient. Since 2010 alone the value of the leading social network, face book has more than tripled. Some social video game firms have risen rapidly, their value quickly shooting up to even overtake already established companies that have been flourishing and established many years ago. For example Zynga a social video game firm has only been in existence for four years, yet its value has overtaken that of its competitor Electronic Arts a video game company that has been in existence for twenty-eight years.

‘‘Zynga is now valued on the secondary market at $5.27 billion on Shares Post, where Zynga employees can sell shares that they own in the private company. Electronic Arts is worth $5.24 billion in public trading on the NASDAQ stock market. The Shares Post listings are thinly traded compared to Electronic Art’s stock, but it is perhaps the only real measure of the value of Zynga’s stock at any given moment. Several hope that Zynga will go public, but it hasn’t any plan yet.’’ (Rheaume 1).

In 2011, there has been the reemergence of the gold rush as individuals aim to make fortunes from the new generation of internet companies. People are very much into the frenzy that their idea will be the next big thing hitting the markets. Internet oriented company’s value has been skyrocketing every week. For example, Zynga has now been valued at nine billion dollars, profitless Twitter has been valued to be worth ten billion dollars. Those who think that the frenzy is positive and there is no internet bubble possible have projected that the real boom will occur when Face book goes public sometimes in 2012 (Monte & Swope 33).

Why the second internet bubble is real

As stated, the value of Face book has been on the rise every month. On February, it emerged that the various staff of Face book had established the various methods necessary for market sales and were planning to sell a billion dollar of the privately held shares. The shares were to be disposed at a price that values the private company at sixty billion dollars,( of which this is an increase of ten billion dollars from January 2011). The rapid increase in valuation is alarming with many experts claiming this was a clear sign that the second, internet bubble as on or was in the making.

‘‘Alan Patrick, co-founder of technology consultancy Broad sight, says we are at the beginning of another bubble and that the first breaths have been blown: A bubble is defined by too much money chasing assets, greater production of those assets, then the need to find a greater fool to buy them.” (Rushe 1).

The social networks have made people to invest heavily on them, as people hope there is going to be more rises in the stock market. This has been compared to the mortgage bubble where people invested heavily, with there being a scramble for the best houses only for there to be a setback later. With the social media as the New Thing, people talk of how the various social networks like Twitter and face book have revolutionized the human interaction and communication. Although these sites are not making much money, they are nonetheless perceived to be worth a fortune. Various experts have been sounding the warnings as to what is in store in the future. Fred Wilson having been a seasoned investor at Union Square Ventures is very worried that startups could be paid to as high as fifty million dollars. He says it is not logical and people need to be more realistic if a scenario like the first internet bubble was to be avoided. Mark Cuban has termed the recent funding events as comparable to the pyramid scheme; he was a major beneficiary of the first internet bubble where he made a fortune by selling his company early during the initial stages of the bubble (Herr & Kazandziska 18).

The massive and unprecedented flotation of the internet software company Netscape was the major initiator of the first dotcom boom. In the contemporary setting, many view Face book as the company that is going to trigger the second internet bubble. Many believe it has already started, with the massive overinvestment and overvaluation being the first characterization that the process is inevitable. It is just a matter of time for the various stages to mature and burst into the seen. With the social media companies valuation increment every day, people are being blinded by the number of subscribers each network is registering every day forgetting what matters is the amount of real money generated at any given time.

The difference between the first and the second internet bubble

However, not everybody believes that there is a bubble in the making. Sumon Sadhu a highly qualified and experienced intelligence director at Quid has the perception that this time round only money will flow without a bubble. He argues that the social networking allows there to be more transparency and accountability. Individual information and pictures allows the various customers to have a clue of the person they are dealing with. He also says that the money generated is not falling into the hands of few individuals rather it is circulated into various companies and therefore money is used to get more money. A person’s identity is more rounded by the use of Face book and this he terms as worth a fortune (Wade 54).

Second internet bubble has also surfaced with the high interest in Chinese companies. There has been a skyrocketing interest in Chinese internet companies of which has been ignited by the fact that almost half of the number of companies that went public on NASDAQ in 2010 had Chinese roots and at least seventeen more which are high profile and prominent are planning foreign initial public offers this year, 2011. Experts have raised an alarm that given the volatile and frail, fluctuating market and political environment, these companies’ valuations are disturbing causing many investors panic that there might be a reoccurrence of an internet bubble (Walker 8).

Some experts believe that this speculated internet bubble is not comparable to the first internet bubble and there is not going to be any sort of a bubble in 2011. They argue that during the first bubble, only ten percent of Americans had broadband internet, however at the present situation broadband internet is six times than it was then and thus major observable growth has really taken place than unanticipated. It is also argued that while the first bubble registered boom that was out of misconception, this time round there is balance of prices and the growth is logical, taking into account that the internet boom is devouring on the offline businesses and thus this boom is accounted for. For example, it is noted that online advertising companies like on Google has been denying the offline channels like magazines and newspapers massive revenues that they could have generated on normal condition.

It is therefore argued that the internet is not creating a frenzy that is not there rather it has facilitated the shift in the way business is conducted. The shift has seen the retail and media landscape moving to social media and thus the massive revenue from the social media is as a result of the redirected revenue. This internet boom has been punishing to the already existing business ventures that struggle with digitalization of their businesses. The internet should thus not only be viewed as an endless succession of human sophistication and advancement in technology, rather as also as a competitor and destroyer. Those who hold this view argue that the time people spend while glued to the internet would have been used for more rewarding economic venture. Internet activities thus rob off noble economic time (Gammons 12).

Others see the social media as an act of perfection of the internet and thus the massive boom should not be a cause of alarm rather a point of reference of improvement and advancement. Internet is comparable to electricity in that while electricity had been used in the 18^th century it was not until the 19^th century that experts observed the impact of electricity on businesses that there resulted in the revolution of using electricity in almost all levels of production. The same applies for internet in that although it had been in existence since the 1960 with computers having come earlier in the 1940s, it was not until the 1900s that there emerged the widespread radical commercialization of the internet. The first bubble occurred after merely five years of commercialization of the internet with a bust in 2000. This should not be viewed as illogical setback rather it was due to the underdevelopment of the technology. Broadband connectivity as well as the hardware and software programs was in their initial stages of development. Apart from that, only few people understood the internet concept (Hardaway 3).

In the recent times, things are very different, in that the internet industry has undergone major advancement and development. Internet education, expertise, and the extensive know how is widespread and thus not many people who are not aware of the impact and usefulness of the technology. The present day model of internet business reflect both the infrastructure improvement and networking, as well as improved, well structured knowledge and insights of the technology. During this era, people equipped with sufficient knowledge about the technology are excited about the new technology. In addition, this new technology is accommodative and has the required advanced channels to cater for the increased demand and thus this could be accounted for as the main reason for the shooting of valuations for some companies especially the social media companies like Face book. Second internet bubble is thus not possible and thus there should be no reason for alarm (Dellmour 23).

Some experts who were there during the first dot-com era have insisted that the two periods are not comparable. They have hailed the internet activities of the modern times citing various advantages. For example, they have stated that, in the past, starting a company required a physical office with equipments and servers. However, things have drastically changed in the contemporary modern times in that when establishing a company you do not require a server. It is also possible of having a mobile office. The technology of cloud computing facilitates the hosting of much of the infrastructures and thus the various entrepreneurs can shift their focus onto the development of the product than was the case in the past. For an investor to start a company it costs much less now than was in the 1990s and thus it is cost cutting in the contemporary business world when setting up a company.

The 1990s companies did not do prior market research and without sufficient knowledge, they rushed to secure a lucrative IPO. In the current setting, companies are more wary and are not in a hurry to go public. While some companies could have been said to be overvalued n the 1990s, one cannot say that a company like Google is overvalued in the current world. Another major difference between the two events is the fact that, in the 1990s, the emerging companies of the time had the misconception that they were on the verge of knocking off the already established businesses, however that was never the case and the big companies are the survivors of the dot com era (Cole & Hawkins 4).

Conclusion

The second internet bubble has many experts having opposing views. The rise in valuation of social media companies like Face book has been pointed out as an indication the second internet bubble is on its way. However, some experts have pointed out that this valuation is not baseless but rather logical owing to the fact that most of the business ventures have ceased to rely on offline means of conducting business to online means. This means the valuation rise of these companies could be attributed to the diversion of revenues into these social media companies and thus it is explainable. On the other side, some experts feel the valuations are unwarranted and the belief these networks are permanent and are guaranteed success is deceiving many people. Either ways, the second internet bubble remain a topic of contention.

Works Cited

Coles, Andrew and Hawkins David. MIDAS Technical Analysis. New Jersey: John Wiley & Sons, 2011.

Dellmour Benedikt. Critical Success Factors it-start-up companies. New York: Auflage, 2011.

Gammons, Helen. The Art of Music Publishing. Oxford: Elsevier Ltd. 2011.

Hardaway, Robert. The Great American Housing Bubble: the Road to Collapse. Santa Barbara: LLC, 2011.

Herr, Hansjord,. Kazandziska, Milka. Macroeconomic regimes in western industrial countries. New York: Routledge, 2011.

Monte, James, and Swope Rick. The Market Guy’s Five Points for Trading Success. Sussex: John Wiley & Sons, 2011.

Rheaume Louis. ‘‘Are we entering in a second internet stock market bubble?’’ seeking Alpha, 2010.

Rushe Dominc. Is this thee start of the second dotcom bubble? New York: The Observer, 2011.

Wade Thomas. The American Economy. New York: M.E. Sharpe, Inc, 2011.

Walker, Stephen. Wave theory for alternative investments. New York: McGraw-Hill Company, 2011.

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