West Sea Bubble

October 31st, 2013

I’m not that old — God is old — but I clearly remember the South Sea Bubble, when credulous investors pumped hundreds of pounds into shadowy companies which made extravagant promises of riches beyond the dreams of aviaries, most notoriously one which was incorporated for “carrying on an undertaking of Great Advantage, but no one to know what it is”.

The tables have turned. Today’s must-invest-in companies make no profits and no promises at all, yet they have to fight investors off with sticks.

Snapchat is in talks for funding that values it at $3.6 billion, even though it doesn’t appear to have figured out how to monetise its service yet. When we launched fotoLibra we wrote up very detailed plans on how it was going to make money, plans that we have carried out with some small degree of success, despite the appalling financial climate and the plummeting value of images. Nevertheless investors stayed away in droves.

It doesn’t seem to matter that a company has no idea how to make money. Today you make money by selling your concept to investors. Snapchat points to 9% of American youth having used its service. But 9% of American youth used to buy Eddie Fisher records. They don’t any more.

These companies are new and exciting, like hula hoops and yo-yos. I wonder how long their shelf life will be. Snapchat’s unique selling point is that it allows people to exchange photographs which then disappear. So it really is selling smoke.

When Facebook made its public offering I commented that if the Duke of Westminster decided to sell the freehold of the whole of Belgravia he’d be able to buy 18% of Facebook. I advised him not to, and I’m glad to say he appears to have heeded my advice. I believe Belgravia will be substantially more valuable in 50 years’ time than whatever the rump of Facebook will be. As for enterprises like Snapchat, Pinterest and Tumblr, I think they will be footnotes in internet bubble history.

fotoLibra, on the other hand, should be on course for world domination.

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13 Responses to “West Sea Bubble”

  1. Paul Verizzo says:

    Almost four hundred years after the Tulip Mania of 1637, people haven’t learned. http://en.wikipedia.org/wiki/Tulip_mania

    It’s obvious to me that we aren’t homo sapiens sapiens, but homo sapiens emotus. We make decisions based on emotions, then we justify them with a veneer of ration.

  2. Derek Metson says:

    You are right Gwyn.

    But nobody wants service these days just something ‘instant’ whatever it is. Just look at all those (including some MPs) who whinged about trains not running and power not back on instantly after the worse storm since 1987.

    Some people think everything happens at the click of a mouse. Some seem to think they are the only people who matter and the world revolves around them. Words for these types – and similar – include stupid and gullible.

    You should have offered shares in an alternative to Royal Mail (parcels sent by 3D printer maybe…) instead of fotoLibra. You’d be a billionaire now.

    Incidentally – did you check my response to your blog on follies?

    • Gwyn Headley says:

      I don’t want to be a billionaire — I just want not to have to worry about bills and feel that I’ve really done the best I can for everyone.
      So now I must go and check your folly blog response!

  3. Brian Murray says:

    Remember the dot com bubble of the late 90′s? If it had .com after the name, people invested in droves with no regard towards what they were actually buying. Many thought they were buying into a proper company, with offices and assets: in most cases, they were buying into an easily plagiarised website and a database of very fickle customers. Or, more likely, merely registered users. I know people who specifically bought their first computer so that they could buy into “the next big” dot com. Many indulged in what they thought was cyber squatting.

    It seems that the kind of stupidity which encouraged people to acquire pet rocks is still alive and kicking.

    • Gwyn Headley says:

      I strongly recommend a book I read as a teenager, “Extraordinary Popular Delusions and the Madness of Crowds”. It should be required reading for all potential investors.

  4. Gwyn Headley says:

    Since I posted this half an hour ago the online newsletter Read Write Web has posted a story which is the first admission that Facebook’s growth is not inexorable:

    “Facebook finally admitted what many people have long predicted, and what CEO Mark Zuckerberg denied this summer: Facebook is losing its cool with teens. During today’s earnings call — initially dominated by news of significant growth in mobile ad revenue — Facebook officials also offered a somber note about the social network’s teen audience. “We did see a decrease in daily users, specifically among younger teens,” Facebook CFO David Ebersman said.”

    Remember, there’s nothing less cool than the things which interest your parents. And as many teenagers are breeding by the age of 14, that gives FB a 10 year lifespan.

  5. Max says:

    Gwyn – come on, you may not be as old as God yet but surely you weren’t born yesterday? You only have to read their privacy policy http://www.snapchat.com/privacy/ to see what they are monetising, or intending to.

    Photo-sharing is the perfect way to reach the demographic with the shortest attention span in the history of mankind. Knowledge is power. And all the recent hand-wringing over the NSA is nothing compared to the economic espionage wrought every day by services like this.

    It may be that gentlemen do not read each other’s mail, but the gloves came off a long, long time ago.

    • Gwyn Headley says:

      I’m sorry Max, I hadn’t read their privacy policy (TLDR) but on glancing through it, the premise is hardly original. Instead of proving a service in exchange for payment, it provides a free service in exchange for personal data which can then be resold to organisations wishing to exploit that data.

      Therefore they are trawling for email addresses and more. So is every other West Coast start-up. But the data is time limited — things change, people change, and so do contact details. Any company which uses mailing lists will tell you that a 12 month old mailing list is only of interest as an historic document.

      Like a shark, it has to keep moving forward or else it will suffocate. And then it will die.

      PS: thanks for that ‘yet’.

      • Max says:

        I know what you mean, but the data they are able to glean is much more pernicious, pervasive and perennial than a mere ‘old-fashioned’ mailing list or address book grab. Once you have connected so many, many dots, it’s possible to track people over lifetimes.

        We may ditch an email address, but our networks of friends, colleagues, associates, etc, are much less readily discarded. No-one talks about facial recognition, but it is spectacularly advanced. “Minority Report” is already here. As the number of so-called datapoints that companies aggregate for people via “services” like these grow, so it becomes harder to retain any vestige of privacy.

        Dinosaurs like us, the digital immigrants, may be wising up to these motives (“free”, in exchange for your immortal soul), and besides, we’re harder to influence (we like to think). Just as big tobacco shifted its focus to emerging economies, so the data brokers need to hoover up as much “yuff” data as possible while the going is good. The young are too busy being hip to read terms and conditions.

        I’m not saying this particular company is worth anything, I’m just saying the photo aspect is smoke and mirrors, mere misdirection – and explains why Facebook bought Instagram for ‘silly’ money.

        I’m just hoping Google haven’t had their fingers crossed behind their backs the whole time they’ve been saying “Don’t Be Evil”…

  6. Mike Mumford says:

    “The Up-Down Bubble Age”, is here to stay, because it is in the human DNA brain. Throughout history any technical advantage was used to amass private fortunes, from piracy to landlords, to industries in cotton, wool and iron.
    Slowly the information world developed. Time latitude and discovery was a positive bubble, together with steam power opened up the world. The next bubble was the telegraph and telephones access the world. The transportation of plants and minerals improved our standard of living. The down was the human slavery still used today, look at any cheap labour market in poor countries.
    Our past is now the present exploration is all around us.
    For every good bubble there are two bad ones. The digital age is the best yet, in the right hands and properly managed like any good newspaper or business, in one word “accountable”. The spam bubble is growing and must be policed to prevent all spam robbery taking over and placing the population, business and governments in the next civil war in cyber space.

  7. Mike Mumford says:

    Just a foot note, this current HS2 Bubble to get off my chest. The government seem to be hell bent on a speedy train to transport themselves around the country, for 50+ billions, for starters!

    Why don’t the politicians help the country for the long-term. Brunel had the right idea for industry, why not a 7- foot gauge railway again. This will cost a lot more, but the environment and GB Railways would once again rule the rails. Please get voting and wakeup these self centered politician’s to do something now.

  8. Janet Pilch says:

    Don’t forget my birthday party on Sunday 17 November 1pm onwards. Address is:
    38 Defoe House
    Barbican
    EC2

    Tel 7638 5158

    Hope to see you and Yvonne the. Pilch xx