Why This Tech Bubble is Different

Soap Bubble

As iPad excitement and cloud computing keep speeding along and multibillion-dollar valuations on fledgling social networks continue to grab headlines, it’s worth asking whether the tech industry is experiencing a boom or a bubble.

Soap BubbleLeave it to the sober-minded writers of The Economist to take a carefully measured look. Their conclusion: It’s a bubble, but with boom-like fundamentals that should keep it from bursting disastrously.

The Internet world is being transformed by a number of powerful forces, three of which stand out. First, technological progress has made it much simpler and cheaper to try out myriad bright ideas for online businesses. Second, a new breed of rich investors has been keen to back those ideas. And, third, this boom is much more global than the last one; Chinese Internet firms are causing as much excitement as American ones.

The most important finding here is that Moore’s Law is still in effect. As computing power continues to grow exponentially without cost increases, innovations like smartphones and cloud-based environments will continue to emerge. It costs so little to get a new idea going, and this time around companies like Groupon can show immediate revenues, not the speculative revenues that all those failed dot-coms never delievered. (Pets.com, anyone?) They’ll be funded by increasingly rich and aggressive venture capitalists, and the market for all this innovation will be truly global, with billions of potential customers. Look around. In the tech industry, 2011 is nothing like 1999.

Source: The Economist

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