In a previous post, People Are Over-Excited, I remarked that people are too excited about internet companies, and there is a bubble in this industry. I was talking about WhatsApp. Now I now discuss something else.
Imagine sending the following text message to your friend:
Yo
Yes, just these two letters.
Yo, now what? Guess how much funding this app got? 1.2 million USD.http://techcrunch.com/2014/06/18/yo-yo/
Some people are still skeptical of the existence of bubbles. They argued that apps like WhatsApp and Yo has built a huge customer base and that is important---A canonical app company's business model relied on harnessing network effects by operating at a sustained net loss and to build market share (or mind share). These companies offered their services or end product for free with the expectation that they could build enough brand awareness to charge profitable rates for their services later. The motto "get big fast" reflected this strategy.
Btw, I did not wrote the previous explanation. I copy pasted from Wikipedia's page on dot.com bubble. I only changed the dot.com to app. That reflects my attitude.
I am now very confident that there is a bubble. The problem is when it will burst and what will that bring about. The questions I am curious about is what is the differential effect on sound companies like Amazon and google versus those jokes. How will it impact the kind of innovation company takes? Obviously, innovation like Yo will stop, but will big companies be hurt to such an extent that they will need to suspend current promising research that might not promise immediate payoff. The impact on labor market is equally interesting. When companies shrink, where will excess programmers go? Will they shift to finance, especially into high frequency trading?
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