Five things the tech bubble was right about

When the internet bubble burst in 2000, many investors seem to have been stunned by their collective stupidity, and shouted: What were we thinking? How Pets.com, a zero-profit company more famous for its mascot, a rag puppet with bouncing ears, than any coherent business plan, managed to go public on the Nasdaq and then file for bankruptcy in less than a year. year?

Today, some investors may be brooding over the 29% drop on the Nasdaq this year, and contemplating the rubble of the special purpose acquisitions (Spac) companies that have allowed several companies without profits or plans to coherent businesses to come to market. These Spacs were, in the words of one veteran investor, the “last degenerate spasm of a market rally that lasted much longer than it should have.”

However, as tech entrepreneur Paul Graham asserted in a brilliant essay published after the first internet crash, stock market investors were right about the direction of travel, even if they were wrong about its speed. “For all the nonsense we heard during the bubble about the ‘new economy’, there was a kernel of truth,” he wrote in the essay “What The Bubble Got Right” [coisas sobre as quais a bolha estava certa].

Written in 2004, Graham’s compiled list of ten things the bubble was right about continues to stand the test of time. The internet has truly revolutionized business. Clumsy 26-year-old Californian nerds equipped with good ideas often innovated far more than 50-year-old suit-wearing executives, despite their excellent business connections. Technology doesn’t add, it multiplies, he wrote.

What were investors right about in the latest bubble?

It would be fascinating to hear what Graham has to say about the current situation. Unfortunately, he still hasn’t replied to my email. So to start the debate, here are five things that I think the last bubble was right about, based on interviews with investors and entrepreneurs. Readers are sure to have better, or contrary, ideas.

1.Data is gold

First, the stock market was right to place enormous value on data, even if accountants have trouble recognizing it on their balance sheets. Companies that are able to collect, process and exploit meaningful data have a major competitive advantage in almost every market.

2. Electronic globalization only advances

Second, while globalization may be slowing down, electronic globalization is accelerating. The International Telecommunication Union estimates that 4.9 billion people — or 63% of the world’s population — were connected to the Internet in 2021. Its goal is to reach 100% by 2030. Not only are people accessing the Internet more and more as they are increasingly accessible there. A teenage programmer working from a room in Tallinn, Lagos or Jakarta can reach a worldwide audience overnight.

3. Covid pandemic transformed the scenario

Third, the Covid pandemic has permanently changed the world of work. Equity investors may have been suffering from vertigo as they pushed up generous valuations of companies that have become especially popular in the lockdown, such as Netflix, Spotify, Peloton and Zoom. But for many companies, forcing valuable employees back to the office will never be possible again. Companies known as “liquid enterprises,” able to hire and manage workers around the world, will thrive — as will companies that serve this decentralized workforce.

4. Energy transition is irreversible and will bring value

Fourth, the energy transition will translate into colossal wealth in equity markets. Tesla may have become the most overrated, if not overrated, company on the planet. But because it leads the electric vehicle revolution, it symbolizes an important trend.

5. Digital assets will be inevitable

Fifth, the technologists propagating the gospel of cryptocurrencies and the Web 3 may have so far failed to provide enough answers, but they are asking the right questions. How will we own and market digital assets? “Blockchain will completely change the game. It will restructure the back office of the planet,” said the chief executive of a bank.

The cyclical downturn in open and closed tech markets this year has bucked these centuries-old trends. But in recent weeks, investors are opening up again to the lure of fast-growing tech companies. One example is Figma, a collaborative software company that has just accepted a takeover bid by Adobe for a staggering $20 billion.

Dylan Field, 30, one of Figma’s founders, told me his company was built on the “megatrends” that are reshaping the tech industry. About 81% of Figma’s active users live outside the United States today. It may have become a cliché to say that “software is devouring the world” (to use a phrase coined by tech investor Marc Andreessen), but that remains true. “People assume it’s over. But it’s just begun,” says Field.

There were times when the latest tech bubble was akin to the involuntary pyramid scheme operated by the first wave of the internet and described by Graham at the beginning of the century. But that’s not to say that investors’ instincts weren’t solid, both then and now. The only question is what price should we put on them.

Translation by Paulo Migliacci