This tech stock market is different
Start-ups upending traditional industries
At the height of the tech bubble, there was a company everyone talked about. Granted, I’m pretty sure no one actually knew what the company did. You didn’t need to.
The company was CMGI. All that mattered was that it had something to do with the Internet.
This time around, as the Nasdaq begins 2015 at a 14-year high, it’s different.
Having lunch at a coffee shop in an unlikely town in rural New Hampshire over the holidays, I was struck by the conversation going on at a nearby table. Two older men, retirees, trading stock tips. It was exactly the kind of chatter you’d have heard in 2000. Albeit, with a twist. These men weren’t talking about how much various tickers were soaring. Instead, they were discussing the technology of the different companies they owned, how the businesses were making money and how they would have the power to change lives. The increases in valuations were simply the byproducts of good businesses. These guys knew: Fundamentals matter.
And, fundamentally, there’s a remarkable shift going on in our economy right now — with technology as the great disrupter, upending traditional industries and turning them on their heads. From transportation, to travel, to media, productivity gains, improved transparency and the ability for the consumer to have a bigger voice are improving efficiencies, creating new market opportunities and creating value. The private market is incubating some potentially exciting and transformative ideas.
Consider the car-riding app Uber. As someone who lives in New York, I’m well acquainted with the challenges of finding transportation on a rainy (or snowy) Friday night. Pre-Uber, I had three options: Call a car service and wait an hour or more, hail a taxi (good luck finding one) or hop the train. Given this scenario, most people would opt for the train. As such, taxis and car services lost potential business.
Now, there’s a new option: Uber. Open the app, request a car and a courteous driver (at least, in my experience) is at the door in less than four minutes. Of course, you may have to pay up with hefty surcharges during rush hour, but the service is reliable.
As such, Uber has found a way to better allocate resources — enabling a passenger to find a ride and a driver to command the most efficient price. It cuts out the laborious middlemen (whether it be the Taxi Commission or the radio dispatch service) and improves the market.
Uber, already boasting a lofty valuation of $40 billion (for perspective, Facebook is worth over $200 billion) could go public as early as this year. For private investors to recoup their investment, it will need to command a pretty high multiple. It would also need to overcome significant regulatory hurdles and public re- lations challenges.
Still, the power of this company lies in its ability to change car transportation as we know it. In an interview in with me last year, Uber’s CEO, Travis Kalanick, said his goal was to make car ownership a thing of the past. “If it (the cost) can get lower than owning a car, that’s a big deal, and that’s where this technology and progress will go.”
Another example of a start-up creating new value in the “peerto-peer” space is Airbnb, which enables homeowners to rent their pads out by the night, week — you name it. By turning everyday Americans into small-time innkeepers, the company is utilizing what in many cases would otherwise be dormant resources — thereby improving efficiency and enabling new markets.
Transformative tech has also taken over news media.
Investor Chris Dixon of the venture firm Andreessen Horowitz bet $50 million on BuzzFeed, the popular news site created by the former Huffington Post co-founder Jonah Peretti, valuing the company at nearly a billion dollars. Steep, yes. But think about this: In less than a decade, this pop culture start-up website, often scoffed at for its cat memes and lists, has amassed 150 million unique users a month, overtaking many traditional brands as a source for how people get their news.
BuzzFeed’s success stems, in part, from its founder’s early understanding of the power of viral. The site relies heavily on its users to promote BuzzFeed content, and the strategy works.
Naysayers will insist valuations are out of step with reality and, in some cases, they are. Without a doubt, there will be more losers than winners in this space. Nonetheless, tech is the engine that will continue to power new leaps forward in our economy.
2015 is just the beginning.