The New Tech Bubble?
Published on August 15, 2011 by Sara Foss

I'm not an economist, nor do I play one on TV, but I wasn't at all surprised by recent reports, such as this one, suggesting that Groupon, the wildly popular deal-of-the-day website, is bleeding hundreds of millions of dollars. I had never heard of Groupon when the site filed paperwork to go public back in June, and I was shocked to learn that the company was valued at $30 billion. I don't know, that figure just didn't sound right to me, maybe because I don't know a single person who actually uses Groupon.

Of course, there are a lot of websites that nobody I know uses, such as LinkedIn, the business/social networking site that saw its shares rise by as much as 171 percent on the company's first day of public trade on the New York Stock Exchange. The Groupon news, coming so soon after the LinkedIn news, made me suspect that we were about to experience another tech boom, and so I feel somewhat vindicated by the more sober reports about Groupon's finances.

I also found a June essay by David Sirota arguing that social media sites such as Groupon and LinkedIn are creating a new tech bubble fairly persuasive. Here's an excerpt:

"We all remember the infamous tech boom and then bust of the late 1990s. As long as a stock had an 'e' pre-fix and a '.com' suffix, it was considered a triple-A rated investment by financial advisers -- something you couldn't afford not to bet your IRA and your kids' college education fund on. Then came the revelation that -- whoops! -- a lot of these stocks represented companies in website-name only, not actual revenue-producing businesses, and down went the market... and a lot of portfolios with it.

Despite the losses, this cycle of investing in companies whose value was a matter of pure speculation and hype nonetheless pressed on, subsequently creating the Enron debacle and, later, the Wall Street collapse. Only at that point, after more than a decade of financial rape and speculative pillaging, did we finally seem ready to reject an economy built on Bubblenomics. As bailouts drained the treasury, our righteous anger could have been summed up by that famous Bushism: 'Fool me once, shame on you, fool me [twice]... can't get fooled again.'

And yet, somehow, here we are again, watching the speculative class now using the hype around social media technology to try to reinflate the ol' dot-com bubble that started the whole debacle. To know it's a bubble is to look at the difference between what speculators are doing and what advertisers are saying."

If the recession and the recent swings of the stock market have taught me anything, it's that hardly anybody knows what they're talking about. Just remember: Many of our so-called experts were shocked by the collapse of the housing market, and then shocked by the severity of the recession. Now they're surprised that growth is really slow, and that unemployment is high.

Again, I am not an economist. Or a trader. And maybe I'm wrong about Groupon and LinkedIn. But until there's more evidence that these companies really are as valuable as people say they are, I'm happy to be a naysayer.

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