Bubble are both good and bad. We, especially, can never forget the dot com bubble of 2000. All it meant for domains was those with bravery and future vision like Frank Schilling could go on a once-in-a-lifetime buying spree because others trash became his treasure. He has many time referred to it as the boulevard of broken dreams.
What follows is vintage Frager Factor VIP post written March 3, 2009. Obviously Twitter wasn't a passing fad. But what if you take this text and substitute your favorite "g" for the word "twitter"
What does it mean when hundreds of third party services (with questionable, if any, business models) are dependent upon a single service which itself has no business model? This guest post by Neal Wiser suggests that Twitter’s amazing growth and popularity are indicators that the company is at the center of an emerging Bubble and examines the risks and rewards that a bubble could present to the service.
Never before in human history have the words of so many been able to travel so far so quickly. Now, with the emergence of Micro-blogging and The Live Web, our ability to communicate and collaborate has, yet again, been significantly amplified. Indeed, it seems that everyday, as we drink our morning coffee, we hear about amazing new technologies, products and services that are developed, announced, released and gain massive loyal followings seemingly overnight.
While it took Twitter, the de facto leader among micro-blogging services, a little longer then that to reach its current level of popularity, few who use this and similar services can doubt that we are participating in the birth of a new, exciting and important communications channel. But does Twitter’s growing popularity and the evolution of the Twitterverse, the combined ecosystem of users, third party services and all things Twitter, foreshadow continued success or impending doom?
No Doom Here. Move Along
It’s hard to suggest that a company with less than thirty employees that just closed an additional funding round of $35 Million is at risk for anything, but the signs are there. Indeed, there are a combination of factors which, together, suggest that if it’s not careful, Twitter could succumb and be a victim of its own success.
So what could possibly suggest that Twitter is at risk? To answer this question, we must take a step back, far enough to see the totality of all that which is the Twitterverse, in order to get a good look at the big picture. It is, in fact, at that point when the ever increasing size of the big picture comes into view that one can see that Twitter is at the center of an enormous and ever inflating bubble.
What is a Bubble?
In economics, bubbles can generally be defined as asset prices that deviate significantly from intrinsic values. In other words, a bubble occurs when massive amounts of capital (or for our purposes, anything else of value) are invested into something of questionable, unproven or little value.
Remember when Alan Greenspan coined the phrase, ‘Irrational Exuberance?’ He was talking about bubbles. Indeed, bubbles seem to be appearing with greater frequency, so much so, that during the past fifteen years we have been witness to and participants in several bubbles including:
The Dot Com Bubble (circa 1995-2001)
Real Estate Bubble (circa 2006 - 2008)
Oil Bubble (circa 2006 - 2008)
In fact, bubbles have become so prevalent that some people believe that bubbles are not only driving both the U.S.’s and much of the world’s economy, but that bubbles, and not products or services, are the main drivers of growth for a growing number of companies.
Why Bubble are Good
If you’re fortunate enough to be at the right place at the right time, and have the right skills, friends, etc., a bubble can be a truly great thing. We all benefit from bubbles in the following ways:
- Bubbles drive Innovation generating new technologies and processes
- Bubbles add value to existing products
- Bubbles put people to work in good jobs (if the enterprise is funded)
- Bubbles give people the opportunity to hone and develop new skills
- One only need look at the already massive, yet still growing ecosystem of new products, features, enhancements and services as an example of how Twitter benefits from their own bubble.
And this is all happening with barely any involvement from or risk to Twitter itself.
The result is that Twitter gets free research and development and it directly benefits from the labor of hundreds, if not thousands, of hard working individuals who assume virtually all of the risk and ultimately make Twitter exponentially more valuable.
Why Bubbles are Bad
Of course, taking advantage of a bubble requires more then just good timing, a good idea or the sheer ability to execute. But even if all of these factors fall into place, one could still fail spectacularly because, like a soap bubble, the forces which hold bubbles together can be tenuous at best.
Unlike their physical counterparts, market-driven bubbles can appear, from the inside, robust and infinite. Unfortunately, as we all know, the reality is that bubbles can be unbelievably fragile and dangerously destructive. Indeed, for every positive effect, bubbles can have negatives effects as well, such as:
- Drive risky and irrational speculation by unqualified investors
- Cause prices to rise to unsustainable levels
- Expose companies and individuals to considerable and unnecessary risk
- Provide fertile ground for swindlers and other predators
- Signs of Twitter’s Bubble
So what's it going to be? Will the "g"s burst your bubble?
Have a GREAT day,
"Business opportunities are like buses,
there's always another one coming."
~~ Richard Branson
This communication is declassified from Frager factor VIP March 2009.
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