Veterans like me have seen the cycle: hype, rise, crash, rebuild. Given historic patterns, the technology market “bubble” should have burst by now.
That’s because this isn’t a bubble. And it’s not a “Trump rally” either. We’re building a strong foundation for continued tech market growth that should sustain the cycle for a couple of decades. Here’s why.
1. Multiple Technologies The dot-com bubble burst because it was created on a single technological phenomenon: The Internet. Big companies scrambled to exploit their new connectivity but there were few – if any – new business models supporting the crop of new companies that hatched to deliver this capability.
Today is different. You have a new set of innovations emerging that are disrupting just about every industry: artificial intelligence/machine learning, Internet of Things (IoT), enterprise mobility, robotics, cloud-based enterprise systems, autonomous vehicles, clean technologies and more. Each technology has its own set of investors, players and revolutionary business models. Though some still scramble for revenue, the fundamentals are there. Each trend serves as an additional brick in the tech market foundation – and their synthesis makes the entire structure more durable.
2. Global Scale
Dot-com revenues were largely based on reaching “eyeballs.” Yet in the 1990s, there were only about 200-300 million pairs of “eyeballs” online around the world. In the decades since, we’ve seen the advent of smart phones, tablets, IoT and other devices drive the number of Internet “users” into the billions: Upwards of 3 billion humans today and tens of billions of devices in the next few years. Tech firms and investors understand that with global scale comes global potential – something exponentially greater than possible during the dot-com days. Now new technologies like IoT and new models like the sharing economy show genuine potential to disrupt traditional market ecosystems.
3. Innovation Investment
Private equity firms and venture funds raised an impressive $319 billion in 2017. Add to that an estimated $875 billion in their leftover cash reserves in funds worldwide, and the trillions in cash held by major tech players like Apple, Cisco, Google, Microsoft and Oracle and you’ve got a recipe for continued growth in tech deal activity for several years to come. The vast majority of this money will flow to innovation-driven players – but not just any players, anymore. The pace of deal making has slowed to enable better due diligence and fewer hype-centric decisions.
Yes, some valuations are sky high; some ideas are crazy; some frenzy is hoping for Trump business-friendly moves; and, some “popping” of “mini bubbles” is inevitable. But the combination of these three trends leads this “old guy” to believe we aren’t looking at a bubble. What we’re seeing is a sign that analysts need to christen the technology market with a more deserved moniker – one that recognizes its diverse, global foundation and continued potential for innovation and growth.
Now, about that name… What should it be?
M.R. Rangaswami is co-founder of Sand Hill Group and publisher of SandHill.com.