Why 2019 could be the year of another tech bubble crash
The app boom is showing a worryingly similar trajectory to the dotcom boom — where traditional metrics of performance are overshadowed by IPOs and big spending
When the dotcom bubble burst in 2000 it sent significant numbers of businesses to the wall. Investment banks had been encouraging enormous investment in dotcom ventures by launching initial public offers (IPOs) allowing investors and entrepreneurs to cash in on vast fortunes by selling off shares in their companies.
Most of the dotcoms which listed on stock exchanges had done little more than consume vast amounts of investor cash and showed little prospect of achieving a profit. Traditional metrics of performance were overlooked and big spending was seen as a sign of rapid progress.
The cash burn was to build branding and create network effects where something gains more value the more people use it. These are the main driver of platform businesses. With Amazon, for example, the more suppliers the greater benefit to potential customers and vice versa. Together, this would build the foundation for future profits on the assumption that the underlying business case was sound. Most were not — and yet almost any idea attracted large amounts of funding. Fast forward 19 years and, following a similar “app” boom, investment banks are bringing forward IPOs as they foresee volatile market conditions arriving later in the year. Ride-hailing apps Uber and Lyft, respectively valued by investment banks at $120bn and $15bn, are to be placed in early 2019 to beat the collapse. Both are lossmakers — with Uber’s losses approaching $4bn in 2018 after a $4.5bn loss in 2017. Traditional metrics have been ignored and user growth taken as a proxy for future profitability. But this re...