Business

Why It’s So Important to See If There is a Tech Bubble

Though the recent tech boom has been a boon to many savvy entrepreneurs, is the rapid technological growth leading to a more prosperous future in the really long run?  This is a question many historians ask themselves as they take a look back into history to find out what happened in past economic revolutions.

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Courtesy of Flickr.com

I’m going to go ahead and say it – All the people utilizing the tech boom are partying like it’s the late 1920s.  They are innovating and pushing technology to its limits by creating new consumer products.  Many technology based companies are financially growing at a rapid pace.  For example, just last July, Uber became valued at $50 billion.  The company’s idea is very simple in that it took a commodity that almost everyone uses (a car) and added a new realm of income for users of that commodity via easily accessible technology.  Concepts like Uber pop up all the time and success rides this seemingly never ending train of innovation.  However, unlike all other trains, this one in particular doesn’t know if and when it will hit a dead end.  If the utilizers of the tech boom are partying like it’s the 1920s, 1929 is just around the corner.  Analysts and venture capitalists looking to find the next big company to invest in debate have always debated among themselves as to whether or not the tech boom is actually a tech bubble.  However, if history is to be believed, this overflow of technology as consumer products will inevitably cause a collapse of the technology industry.

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Courtesy of Flickr.com

As more and more investors place their faith in companies that utilize more advanced technology, there is a great shift in dependency for technology based companies to succeed.  However, if these companies don’t succeed, millions of people lose their jobs, a huge chunk of the stock market collapses, investors go bankrupt, and banks lose all their because the companies can’t pay back the huge loans that they take when they are declining in sales and have a very little margin profit.  Such a collapse would be caused by companies failing potentially due to overcompetition, something that is happening right now in the status quo.  Overcompetition would increase product variation, which would spread consumer money across many companies.  An example of how this spread would happen is when Apple faced a decrease in control in the smartphone industry when Android phones flooded that industry.  A spread in consumer money due to product variation will decrease potential cash flow to all company participants and that decrease will lead to less revenue for all companies.  The decline in revenue would lead to an inevitable decline in profit and in some companies’ cases, the profit will be negative.  Those companies would need to take loans from banks to bring themselves back up and to appease the investors who are dependent on those companies to succeed so the investors don’t back out.  However, the damage has been done and those companies can’t recover.  They cannot repay the bank loans and the banks lose money.  The banks cannot function and they close, which hurts people who are both in and out of the technology sphere.  The result would be a more catastrophic event than the infamous 2008 recession as the companies that failed to compete with bigger companies, investors who placed their faith in those companies, banks who placed their faith in both those investors and those companies, and the common people who place their faith in banks would all fail.

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Courtesy of Flickr.com

This type of collapse would almost be like a bubble bursting.  The industry keeps getting bigger only to pop due to a large size.  Thus, it is extremely important to everyone that we should find out whether or not a tech bubble is happening so that we can take preventive measures to make sure that no one gets hurt.  To explore this possibility, one must look at the current technology market to see if a bubble is in fact forming and growing.

So there it is: This is why we need to figure out right now if there is a tech bubble.  I’m going to delve even deeper into this topic sometime soon, but this is a start.

Please feel free to let me know what you think!  Thanks!

Twitter: @MohitPuvvala

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Categories: Business, Technology

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