Are we in a Tech Bubble??

Before I begin, I must clarify that the post heading is more applicable to the US than to India. TCS today became the most valuable company in India – so our tech sector is still all about offering scale… and pretty much nothing else! But as the rest of this post can attest, sometimes boring is better?

I noticed a few things over the past month or so:

1. Quora is looking to raise $30 million in Series D funding. This implies a $400 million valuation. For those who don’t know, Quora is a site where anyone can get an answer to any question. So in some ways, it’s like an un-moderated Wikipedia.

2. A website called Ditto.com raised $3 million in funding. This is a website which lets users upload their own videos, so they can see themselves trying on new eye wear.

3. Vungle, a website that allows mobile developers to upload video trailers of their apps, raised $2 million seed funding.

4. This is the best one of them all- Cherry.com, a website/app that allows people to schedule a car wash for $29 a pop, raised $4.5 million!

5. And of course, Instagram was bought out by Facebook for a cool $1 billion. I am sure all of it’s 13 employees are very very happy.

6. A recent study showed that Google.com and Facebook.com now pay $100,000 to an entry level engineer and over $6,000 to interns!

I can envisage a situation where Quora, makes money by showing you advertisements based on the question that you asked or answered. But how much money? After all, we already have Wikipedia which has moderated user generated content, is well laid out and structured, has appropriate references and is free of ads!!! After all, the value of the ads that a Quora displays will ultimately be determined by the value people attach to getting the correct answers to their answers. And sometimes the answers are not that great. I grant you that it is a great place to see opposing views (check Can India and Pakistan ever be at peace with each other?) but sometimes sifting through all the answers to look for what I want can be a pain. However, there is a possibility that people do not want moderated, ad free content and really like to read through 20 replies to a question. But $4.5 million for a Car Wash Scheduling Company??? How in the world will they ever scale up? Cherry.com charges $29, how many car washes a day will they need to schedule per day to make serious money? Note that a large chunk of this $29 probably goes to they guy who actually washes the car – who is not an employee of Cherry.com but simply someone who is registered as an interested car washer.

And Vungle’s underlying logic is that since watching trailers of a movie could generate interest in a movie, the same should apply for an app. Really? A movie is not an app!! And note that the $2 million is seed funding, not Series funding!

Is the magic word ‘Social’? All of the above have some social element built into their offering. Cherry.com allows customers to rank their washers possibly facilitating selecting the best washer, and Ditto lets you upload your own video, Quora obviously is all about social collaboration. I recently had someone tell me that our company’s products don’t have a social aspect to them – of course, nobody actually knows what that aspect should be but it’s the classic ‘buzzword’ phenomena. Instagram surely proves that social is THE element you would want – after all, $ 1 billion for a 13 people photo sharing app company is nothing short of amazing. To put it in perspective, that’s about the same valuation as Religare or a little less than Patni Computers ($1.3 bn)!

It’s possible that I am missing something but these do seem like heady days of Dot.com when anyone could raise funding without having a proven business model. Seed funding, which had all but disappeared a few years ago is back again and fresher engineers are getting paid like Harvard MBA’s (not that MBA’s deserve it or anything). Maybe this time it is ‘Social’ instead of ‘dot.com’? Or maybe with the rest of the investment avenues moribund, it is it just money chasing higher yields (that’s how sub prime started)!!

Joseph Kennedy, the father of JFK, once said that “he knew it was time to get out of the stock market before the 1929 crash when he was getting stock tips from the shoeshine boy.” Is it that time before the crash when anyone can raise money as long as there is ‘social’ in it?

Of course, they key is not to recognize the bubble, but to recognize when it is going to burst and that, sadly, I can’t.

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