Why 2011 Is Different Than 1999
Let's Party Like It's 1999...Sorta: Why This Time It's Different

                        
                            Let’s Party Like It’s 1999…Sorta: Why This Time It’s Different
                            Many prominent VCs and entrepreneurs have speculated whether we are in the midst of a “bubble” given how valuations are skyrocketing and LinkedIn’s IPO popped on its first day of trading. Some, like Michael Arrington, have said it’s simply a “Blubble,” speaking to the fact that it’s a little different from 2000, but at the end of the day, the result could be the same. He also reiterated this fact yesterday, about a month after his initial assertion. Fred Wilson, echoed these sentiments as well, saying we’re in the “glass is half full part of the cycle.” Meanwhile, numerous others have said we’re already in the midst of the bubble, and we better be careful.When people contend that 2011 is different than 1999, they often point to how this current crop of top startups has strong fundamentals and are generating positive cash flow, whereas a decade ago some weren’t even earning revenue.  However, as I briefly mentioned in my previous post, I believe the critical difference comes from the fact that this startup revival is all about people – not technology. While that notion may seem counterintuitive given that the debate is over a technology bubble, let’s take a look at the very nature of these “bubblicious” startups. Facebook, Twitter, Zynga, Groupon, LinkedIn, Foursquare, AirBnB, the list goes on – they thrive on and are sustained by human interaction both on the Internet and in real life. Sure, the technology has to be there, but this technological renaissance is grounded in psychology and sociology.Psychological factors affect the tech boom (I’ll use this word going forward instead of “bubble” because I honestly think this period of growth is very sustainable) on two fronts: investors and users. The former right now are motivated by a dangerous concoction of fear and greed – fear that they may miss out on the “next big thing” (see: “Color-gate”) and greed in that they invest at absurd valuations to be attached to the next hot IPO. Psychologically, users don’t want to be left out of the latest fad. There’s a reason Facebook is knocking on the door of 700 million users. It’s because once a bunch of your friends get on the site, you feel compelled to join as well – no matter whether you’re 14 or 40. No one wants to be left out – investors don’t want to miss the next sexy deal and users don’t want to be the only one of their friends not “friending,” “tweeting,” or “checking in.”As evidenced by the list of startups above, this tech boom is being driven by advances in social media. Yes, these startups are founded and run by great technologists who are doing incredible things, but almost all the companies at the forefront of this tech revival are dependent upon network effects and a growing user base. They depend on people interacting, meeting, communicating, sharing, etc. on their site in order to generate revenue and sustain themselves. The tech craze of 1999-2000 couldn’t be pushed forward by social media sites and, frankly, couldn’t sustain itself at all for a very fundamental reason…there simply weren’t enough users to go around. In 2000, there were only a little over 360 million Internet users worldwide, which is only a little more than half of Facebook’s worldwide users alone. At the end of Q1 2011, worldwide Internet users had grown about 480% since the end of 2000 to a little over 2 billion users. More people online results in more users helping social media sites to grow.Bubble or no bubble, you can’t argue with the fact that we’re experiencing a boom unlike anything we’ve seen in a decade, but this time it’s driven by us, the users, not the technology we utilize every day.
                        
                        
                        
                        
                        
                        
                        
                        
                        
                            
                        
                        