Second dot-com bubble

There has been speculation of a second dot-com bubble to succeed the first that occurred roughly between 1995 and 2001. Some refer to it as Bubble 2.0,cite news |url=http://news.bbc.co.uk/2/hi/business/6036337.stm |title=Has the dotcom boom returned? |publisher=BBC News |author=Steve Schifferes |accessdate=2008-01-21] [ [http://www.marketwatch.com/news/story/web-20-showing-signs-bubble/story.aspx?guid={028C8E7D-4AA8-4746-BE28-6454EFD675CA} "Web 2.0 showing signs of Bubble 2.0 already", J.C. Dvorak, Marketwatch] ] as many companies involved are in the Web 2.0 sphere, like Skype, Facebook, and Google. Various suggestions have been proposed as to why there may or may not be a second dot-com bubble.

Evidence for a second dot-com bubble

High stock values

Many commentators are saying that many of the dot-com companies are overvalued due to their monetary size. On the 1 November 2007, Google's shares were valued at over $700, 7 times the amount of the IPO for the company. It also valued the company at US$219 billion, making it the fifth largest company in the United States. [ [http://news.bbc.co.uk/1/hi/business/7072688.stm BBC NEWS | Business | Google shares pass the $700 mark ] ] On 24 October 2007, Microsoft bought a 1.6% stake in the social networking website Facebook for US$240 million, making the company worth US$15 billion. [ [http://news.bbc.co.uk/1/hi/business/7061042.stm BBC NEWS | Business | Microsoft buys stake in Facebook ] ]

High P/E of technology company stocks

Some of the major technology companies have high price-to-earnings ratio figures, which may mean that they are overvalued (over 25 means they may be overvaluedfact|date=May 2008). This includes, as of 1 November 2007: Google at 55.17, Apple Inc. at 48.00, Sun Microsystems at 42.15, Yahoo! at 55.96 (compared to just 24.37 for Microsoft), and 21.13 for AT&T.

High values in purchased companies

This includes Google purchase of YouTube for US$1.65 billion in 2006, eBay's purchase of Skype for US$2.6 billion in September 2005 (both mostly in swapping shares), Intermix Media (owner of MySpace) by News Corporation for US$580 million in 2005. An another example is that the online radio station Last.fm was bought for US$280 million by CBS Interactive.

Evidence against a second dot-com bubble

Proper businesses

The companies being acquired today are real businesses, with lots of customers or viewers. Rather than working on just speculation, Facebook has (as of October 2007) 43 million active members worldwide.cite web |url=http://www.govtech.com/gt/articles/174341 |title=Washington Unveils MySpace Page and Facebook Group |accessdate=2007-11-15 |author= |last= |first= |date=2007-11-08 |work=Government Technology |publisher=eRepublic |doi= |archiveurl= |archivedate= |quote= ] Another key difference with the earlier dot-com bubble is that companies now have a model of how to make money from the Internet — and that model is based on advertising." This means money is coming through the doors, rather than working on the prospected income.

Real money being fuelled

The new boom is not being fuelled by IPOs; the money financing all acquisitions comes directly from cash reserves of established companies with long-term interest on the purchased businesses.

No heavy speculation in the stock exchange

The main technology stock exchange, the Nasdaq, rose just 2.5% in 2005, 8% in 2006 and so far 17% in 2007; this hardly constitutes a speculative bubble. During the dot-com bubble the Nasdaq rose 41% in 1995, 22% in 1996, 23% in 1997, 38% in 1998, 84% in 1999 and 22% in the first 3 months of 2000. The bubble finally burst on March 10 2000. [cite web |url=http://finance.yahoo.com/q/hp?s=%5EIXIC&a=10&b=5&c=2006&d=10&e=7&f=2007&g=d&z=66&y=198 |title=^IXIC: Historical Prices for NASDAQ COMPOSITE |publisher=Yahoo! Finance]

Too few companies and too small to make a bubble

Facebook, Youtube, Myspace and Skype can't constitute a market bubble let alone one comparable to the dot-com bubble of 2000. The reason why the earlier dot-com bubble is called so is because it wiped out $5 trillion in market value of technology companies from March 2000 to October 2002. [cite news |url=http://www.qctimes.com/articles/2006/07/17/news/business/doc44bb0a1ab97ce159604273.txt |title=Will dotcom bubble burst again? |publisher=Quad-City Times |date=July 17, 2006 |accessdate=2008-01-21]

List of companies significant to the bubble

*aQuantive
*Baidu
*Bebo
*Digg
*DoubleClick
*eBay
*Famzam.com
*Facebook
*Google
*Microsoft
*MySpace
*News Corporation
*Valleywag
*Skype
*VMware – its IPO was valued at US$19 billion
*LinkedIn
*Yahoo

See also

*Dot-com bubble – the original dot-com bubble

References

External links

* [http://cbs5.com/seenon/local_story_124203246.html Second Dot-Com Boom On Its Way?] – 6 years on, are we heading for another Internet boom or bust?
* [http://bubble20.blogspot.com/ A blog on the second dot-com bubble]
* [http://www.theregister.co.uk/2005/10/07/six_things_about_the_bubble/ "Six Things you need to know about Bubble 2.0", Andrew Orlowski, The Register]
* [http://www.ft.com/cms/s/0/c81136ba-f747-11db-86b0-000b5df10621.html "Bubble 2.0?", Richard Waters, FT.com]
* [http://www.metacafe.com/watch/958560/here_comes_another_bubble/ "Here Comes Another Bubble" by the Richter Scales, a video paroding the second dot-com bubble]