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June 16, 2011

The Tech Valuations : Is it a Bubble or a Double

The valuations of internet-based companies have significant room for growth in the next decade, argues venture capitalist Ben Horowitz for the Economist.

To understand why, Horowitz produced the three charts below. As you can see, the "Internet Cycle" is due for a massive explosion in the next ten years based on historical trends.
He says that major technology cycles generally last 25 years, with the "bulk of the purchases" happening the last 5-10 years as late adopters sign on. Using this as a frame of reference he says we are "poised to hit the major adoption wave for the Internet technology platform over the next 8 years."
This isn't just idle chatter from Horowitz, either. His VC firm Andreessen Horowitz raised almost $1 billion to invest in this next wave. Horowitz

In a recent debate on the Tech bubble ," Horowitz  explains why this tech bubble will not end in a bubble but more growth that could double , Citing examples , he explains

If we are in a bubble, that is a bit of an odd commentary for a company that grew revenues 83% year-over-year and grew earnings 93% year-over-year. Similarly, Google, well on its way to owning the dominant smart phone operating system and which maintains a near monopoly position in search, trades at a price/earnings (P/E) ratio (ex-cash) of around 13.7.

Horowitz further explains that History shows that major technology cycles tend to be around 25 years long with the bulk of the purchases occurring in the last five-to-ten years.





Social media site G+, a community of professionals, entrepreneurs and academics, put together this detailed infographic


Giving Examples  on why Tech Valuations will only Grow ,he gives  more insights

1)The internet is working :A lot has changed since the internet bubble eleven years ago. Firstly, the cost of running an internet application has fallen 100-fold.In 2000, the first cloud computing company, Loudcloud, where the price for a customer running a redundant version of a basic internet application was approximately $150,000 per month. The cost of running that same application today in Amazon's cloud costs about $1,500 per month.

2)Secondly, developers are more productive. In 2001, Stewart Butterfield abandoned plans to build a massively multiplayer online game (MMOG) after costs became too great; he built photo-sharing service Flickr instead. Now Stewart's new company, Tiny Speck, is again building that MMOG, but today it is working brilliantly. Why? Because Stewart's programmers are ten times more productive than they were in 2001 due to massive advances in programming language technology.

3)Thirdly, the market is far bigger. In 1998, I was working at Netscape, which owned well over half of the browser market. We had about 50 million users, more than half of them on dialup connections which could not run many interesting applications. Today, there are over 2.1 billion people on the internet, most of them using broadband connections. The true market for internet businesses is about 50 times larger than during the actual technology bubble.


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