Dot Com 2.0 – The Sequel Unfolds

The warning signs have been everywhere since the beginning, growing ever clearer with each new valuation round, IPO launch, and earnings cycle emanating from Silicon Valley.

Like a phoenix rising from the ashes of the post Dot-Com ruins people were told not only was it “different this time,” they were also instructed to observe even the phoenix bird itself had morphed into what is now commonly referred to as a “Unicorn.” And any comparisons to the prior meltdown in the land of Dot-Com were met with howls and scowls of, “You just don’t get it!” or worse.

The real issue was, it had nothing to do with “getting it.” It’s all been about Silicon Valley itself acting and arguing as if the past were irrelevant. Now many are coming to a very stark realization that the Valley may in fact once again have repeated all the same mistakes.

Far too many believed all their own press; and acted, spent, and mal-invested in ways that may eclipse the prior folly. Yes, welcome to Dot-Com 2.0. Where unicorns and more are bursting into spontaneous combustion in ways far more spectacular than previous. For it can all be viewed and commented on via the very creation that fueled it: Social media. I garner the news of this unravel will overtake these platforms with a speed, viewership, and voracity that could make the Kardashians jealous.

Another issue that will have an ever-increasing, devastating impact than The Valley currently realizes is: the all encompassing psychological impact such a bursting of a meme can spread and infect the minds of those that bought into all the fairy-tale hype, and pinned their tails on the Unicorn riches they assumed was surely theirs.

After all, if you listened to many now residing within the Valley one could argue that almost to a person today’s newest manifestation of millennial birthright is: Coding = A King’s ransom with a castle in the hills teaming with movie and rock stars, swim suit models, garages filled with exotic cars, and pools or fountains overflowing with champagne. All made possible with shares paid in lieu of salary at the next inevitable IPO cash out in perpetuity. Sadly, many are going to find out differently.

Back in October of 2015 I penned an article titled “Crying Towels: Silicon Valley’s Next Big Investment Op” In it I made the following statement:

“And this brings on a whole host of other meme shattering, break out the “crying towels” type arguments. For if it can happen there – guess where else it’s going to begin happening? Is ________________ next? Just fill in your current favorite high-flying Non-GAAP social darling on that line – for it’s going to happen at all of them very soon in my opinion. Much sooner than many now even think or ever thought possible.

“Coders” will gladly live in some single bed shared between 8 others apartment somewhere near the Valley. Heck. they’re now reporting stories how one can live in a shipping container on the cheap in San Francisco. Sounds fantastic right? Well, it is. As long as the dreams (and expectations) of landing the dream job in a start-up or similar where riches based in stock options and more are forthcoming or, dangled like carrots in front of wide-eyed dreamers.”

The proverbial warning shot became manifest when Twitter™ recently announced a 15% cut of exactly the type of staff or positions thought unimaginable just a year ago. i.e., Coders. Suddenly the very people once considered as “indispensable” and with an “inexhaustible need” unnervingly found that they were the first to go – in the first round of layoffs. This was the first visible prick to the meme-bubble bursting in my opinion. And as we all are becoming quite aware of: It’s far from the last, for the cannons have yet to begin firing in earnest.

Once high flyers such as the aforementioned Twitter and others are crashing to Earth like the proverbial canary. Companies like Square™, Box™, GoPro™, Pandora™, and now far too many others have watched their stock prices hammered ever lower. Yes, hammered, as in representing one selling round after another with almost no respite. Some have lost 90% of their once lofty high share prices.

What’s further disheartening to those still clinging (or praying) to the “meme-dream” is the ever-increasing reputation of the old “Great companies on sale!” chortles from many a next in rotation fund manager on TV, radio, or print. For it seems every round of selling is being met with ever more selling – no buying. And the lower they go with an ever intensifying pressure, so too does the value of the debutantes in waiting: The yet to be IPO’d unicorns.

Valuation after unicorn valuation are getting marked down in one fell swoops such as that from Fidelity™ and others. However, there probably wasn’t a better representation on how little was left to the unicorn myth (and yes I believed/believe all these valuation metrics were myth and fairy-tales) than the very public meme shattering experienced in both the IPO, as well as the subsequent price action of Square.

Here it was touted the IPO price was less than the unicorn implied valuation. This was supposedly done as to show “value” for those coming in to be next in line to pin their tails on the newest unicorn of riches. The problem? It sold, and sold, and is still selling – and not in a good way.

It seems much like the other company Mr. Dorsey is CEO of (and how anyone with any business acumen argued that was a good idea is still beyond me. But I digress.) this unicorn also can’t fly. And; is in a perilous downward spiral of meeting the ground of reality.

It seems the only interest in buying these once high flyers can garner is wrapped up into any rumor (usually via a Tweet!) that they are to be sold – as in acquired by someone else who might be able to make money with them. Well, at least that would free up the ole CEO dilemma, no?

And speaking of CEO dilemma and acquiring – how’s Yahoo!™ doing? Remember when the strategy for success for Yahoo as posited by the very public adoration styled  magazine cover girl articles of its current CEO Marisa Mayer was an acquisition spree? This was all but unquestionable (and much digital ink spilled) in its brilliance and vision inspired forward thinking. Well, it seems all that “brilliance” has been eviscerated much like how the workforce still employed there is yet to be.

Let me be blunt: All you needed to know things were amiss both at Yahoo as well as “the Valley” itself was to look at the most recent decision of Ms. Mayer to throw a lavish multi-million dollar costumed theme party mere months ago. As unquestionably foolish as this was – the rationale given by many a Silicon Valley aficionado that it was nothing, after all, “it’s common in the Valley” was ever the more stupefying!

Now it seems Yahoo is “cutting its workforce by double-digit percentages.” And: open to the possibility of selling off core assets of its business. Of course – at the right price. However, I’d just offer this advice:

Don’t wait too long on that “right price.” For if the current value of Alibaba™ is any indication – “right” is becoming more inline with “any” much faster than anyone dared think just a year prior.

However, as much as all the above is concerning to anyone paying attention. (And it’s just a thumbnail sketch of the most obvious.) There are those who’ll argue that today is far different that the Dot-Com bubble of the late 90’s early 2000’s. Many will point to the amount of start-ups and other metrics as a tic-for-tat type of comparison. i.e., Unless there are 500 new IPO’s this week as opposed to let’s say 255 today (example #’s only) then today is in no way comparison to the Dot-Com bubble is the ensuing argument. And; anything further is met with deaf ears, blind eyes, or outright dismissal warranting the usual “It’s different this time, and you just don’t get it!” point of finality to the conversation much like a teenagers defiant stance of “Because, just because!”

Well, fair enough. However, if I might be so bold as to use one argument that has been used on people like myself to both shut down any further parsing of facts, or outright dismissal regurgitated by many a Silicon Valley aficionado countless times. That argument?

Marc Andreessen’s quote in his Twitter bio from Martin The Martian (one of my personal all time favorite cartoon characters I’ll add) “Where’s the kaboom? There was supposed to be an earth-shattering kaboom!” When talking about another bubble bursting.

The kaboom now has a name, place, and can be seen and heard by anyone brave enough to not avert their eyes or ears.

It’s called LinkedIn™.

© 2016 Mark St.Cyr