internet bubble

New chapter of a book on technology business models now available

Our new chapter on the redefinition of technology business models is available online at Nova Science Publishers.

Notre nouveau chapitre sur les modèles d’affaires en technologie est maintenant disponible en ligne.


Rethinking North American Telephony Business Models in the Age of Turbulence 

By : Louis Rhéaume, TELUQ and Infocom Intelligence; Dr. Yves Rabeau, UQÀM

Date, June 2012


Since the mid-90’s the telecom industry went into a period of sustained disruptive innovations which combined with deregulation led to a lot of turbulence and a sometimes difficult redefinition of business models. A true Schumpeterian wave of innovation enhanced by competition leads to creation of wealth as an unprecedented investment boom occurred in telecommunications sustained by overly optimistic and sometimes fraudulent forecasts of Internet traffic. But it also led to wealth destruction when the financial bubble ended in a stock markets crash in 2000, whereas several telecom companies went bust weakened by debts, substantial overcapacity and a loss of market power. It then became clear that traffic growth did not translate necessarily into revenue growth. As overcapacity eased in the 2000’s and telecom companies painfully restructured, the wave of innovation went on. Particularly, VoIP definitely made long-distance wireline service and dial-up ISP commodities. The telephony industry is moving from a transport sector toward a service sector as information technologies are at the heart of all business models in the world economy.

Louis Rhéaume

Infocom Intelligence

Twitter: @InfocomAnalysis

Our new article “Yes, There is a Technology Bubble – But Not in Canada, Joel Scott Says” is available on Techvibes

Louis Rhéaume

Infocom Intelligence

Twitter: @InfocomAnalysis


Our new article “Zuora’s Shawn Price on Disruption and the Tech Bubble” is available on Techvibes


Louis Rhéaume

Infocom Intelligence

Twitter: @InfocomAnalysis

FF Ventures’ investment philosophy

John Frankel is the head of FF Ventures, an early-stage venture capital firm that includes some of the web’s hottest startups in its portfolio, including Hashable, Klout and IndieGoGo.

Below is a 6 minutes interview with Frankel to learn what motivates him as an investor, why he’s so attracted to early stage companies and his thoughts on where the next tech bubble will manifest. This Venture Studio Classic was originally released on October 24, 2011. According to Frankel, we are seeing a bubble in later stage private tech investing and IPOs: such as Facebook, Twitter and Linkedin.

Louis Rhéaume
Infocom Intelligence
Twitter: @Infocomanalysis

The future of the Internet in 3 trends according to the CEO of Forrester Research

[published originally on SUNDAY, DECEMBER 11, 2011]

3 trends will influence considerably the Internet, according to the CEO of Forrester Research George Colony.

1-The Internet will offer more applications.
2-The social network sector is due for an important transformation.
3-The entreprise sector will adopt massively the social networks

So, social will still prosper but it will evolve a lot.

George Colony suggests that in each decade we saw the turnaround of a major infocom player. In the 1980’s it was Intel, in the 1990’s it was IBM, in the 2000’s it was Apple and he suggests in 2010’s it could be Microsoft, but it would necessitate a leadership transformation.

Social networks have reach maturation in term of users’ time and penetration rate among population (over 80% in US and Canada for example).

Social start-ups who don’t understand this new rule and consider there is a social bubble will disappear. Strong business models are pre-requisite for post-social survival.

In order to use the Internet more effectively and efficiently, Internet applications (web applications and mobile applications) will prosper.

Forrester provided a graph Total offerings versus Strategy of the major infocom players. While Apple is at the top with a strong offering and a strong strategy, luck helped also Steve Jobs. Apple did not really anticipate the proliferation of mobile apps. However, the business model of Apple could leverage that unanticipated new trend.

To watch the whole video from Le Web conference see:

Louis Rhéaume
Infocom Intelligence
Twitter: @InfocomAnalysis

For Marc Andreessen “Mr. Internet” : we are not in a second tech bubble

[Published originally on SUNDAY, JUNE 05, 2011]

For Marc Andreessen “Mr. Internet” : we are not in a second tech bubble. Marc is the founder of Netscape who created Internet with images. He is now a Venture capitalist involved in Groupon, Twitter, Facebook, Zynga. He is making a tons of millions in profits from its internet investments. He suggests that right now, major tech stocks are undervalued on the stock markets: for instance Cisco Systems, Apple, Microsoft. He said that Apple’s Price-Earnings (PE) ratio is just 10 if you delete cash. He suggests that fast growing valuations of private and public stocks are not general, but in fact isolated, mainly in social networks (Faceboook, Zynga, Linkedin).

For Marc, new tech companies are trying to become profitable companies and not just new promising new IPOs (Initial Public Offerings) like firms in 1999-2000. They tend to have stronger business models than in the last decade.

For the whole interview on the Wall Street Journal see

Louis Rhéaume
Infocom Intelligence
Twitter: @InfocomAnalysis

Tech bubble version 2.0, what have we learned from the krash of 2001?

[Published originally on SATURDAY, APRIL 16, 2011]

It is widely known that the main reason behind the stock krash of 2001 was the lack of sound business models supporting the growth of tech, and mostly Internet stocks. In 1999 and 2000 any company with the name “.com” in it, got premium valuation on the stock exchanges. My ex-boss made a fortune with Year 2000 computing conversion systems (Y2K). It appeared a scam, nothing happened except on 2-3 elevators on the planet on January 1, 2000. My ex-boss diversified by acquiring 50 tech firms in unrelated computing sectors. He had no decent business model. The stock went to $60 to $3 and was acquired around $4.75 around 2002. During the tech bubble, most of the stocks, even the poorly managed, got huge market upside. It was easy to buy new firms with stocks with huge paper value and almost no cash. Due diligence was often discarded for “instincts”. Because a target offered the ex-boss $6 per share for his firm, he thought that offering him $4.75 per share right away was a good idea. The owner of the target declined. With the help of the CFO I found with some basic financial analysis that the financial projections from the firm (so truely over-optimistic) gave a valuation below $1 per share. In fact the firm with a “.com” in the name went bankrupt 2 years later.

The tech firms which passed through the deep recession of 2001-2002 were the ones with the strong business models. Amazon with its e-commerce powerhouse evolved into a cloud-computing powerhouse and with high digital sales. eBay prospered as an electronic exchange. went bankrupt with no decent business model. Several telecom Competitive Exchange Locals Carriers (CLEC) went bankrupt in Canada and USA because they had a me-too business model with no real strategic sustainable advantage. The same thing is happenning right now with “me-too” Groupon competitors.

For more analysis on the need for a strong business model you can read in the coming weeks the chapter : “Rethinking North American telephony business models in the age of turbulence” in the book “Telecommunications: Regulations, Technology and Economics” by Nova Science Publishers.

Authors: Louis Rhéaume, TELUQ-UQAM and Dr. Yves Rabeau, UQAM.

Bloomberg made a good point that in social networks there is a big Internet bubble emerging with high valuations such as Facebook, Zynga, Groupon and Twitter. The one with the weakest business model is Twitter, which is still experimenting with a coherent business model.

Louis Rhéaume
Infocom Intelligence

What 2 of the best Venture capitalists are saying on the future of the Internet?

[Published originally on SUNDAY, NOVEMBER 21, 2010]

Last week, 2 of the best Tech VC (venture capitalist) gave their perspective on the Internet for the Web 2.0 Techcrunch summit.  John Doerr of Kleiner Perkins, the man behind the success of Netscape, Facebook and Google just to name a few; and Fred Wilson of Union Square Ventures who made the deal of Zynga made very interesting remarks on the future of the Internet.

For Wilson, we are in the middle of a second Internet stock market bubble.  I agree with him, but I think we are at the beginning (see post For Doerr we are just in a boom period of a third waves of value creation and innovation about Internet.  For Wilson, tech VC firms are seeing a lot of firms which copy the strategy of others.  Thus, there are a lot right now of “Me too” business models.  For instance, a lot of firms try to copy the success of  Groupon in local daily social networks deals.  It is similar to what happened in telephony in the 1990’s where CLECS (Competitive Local Exchanges Carriers) had almost all the same strategy and business models.  The vast majority went in bankruptcy following the burst of the 2000 tech stock bubble.

According to Wilson only 10% of firms in a VC portfolio should go public, the best ones only.  The rest  should try to sell  to others firms.

For Doerr, the Silicon Valley is still the place where important Internet platforms still emerge and grow.  For him, it has never been a better time to start a tech firm than today.  Valuations are high and VC money is largely available.

For Wilson, a very hot sector right now is the combination between mobile and social networks.  One can think of the potential of Twitter and Groupon for instance in this sector.  He adds that Android will become the dominant platform on mobile because of its open standard platform versus Apple and Research in Motion (RIM and its Blackberry).  Application developpers can create more easily value on this platform.  Wilson proposes that Apple is like the “cable providers” business model of mobile Internet.

Doerr suggests that Facebook, is the strongest firm on execution of the Internet with Google, Apple, and Amazon.

Wilson suggests that Facebook did not create much innovation.  Furthermore, the only complementor of its platform, which created a lot of value is Zynga. He also suggests that Google is the best tech acquirer since a decade.

John Doerr had the final word.  He cited Colin Powell who said: “Innovation without execution is hallucination”.

Louis Rhéaume
Infocom Intelligence

Are we entering in a second Internet stock market bubble?

[Published originally on WEDNESDAY, OCTOBER 27, 2010]

Everybody knows the Internet bubble of 1998-2000.  Valuations of most firms with a link with Internet got very high valuations and after lost a lot of value in 2000-2002.  At that time a firm with the name .com was found sexy by acquirers and represented a great potential takeover target with the exchange of shares (which were only going up) instead  of cash.  After the crash, firms surrounding the Internet, which had a poor business model, lost most of the time 90-95% of their values, or went bankrupt.  E-commerce mutual funds which had 200% return in one year and a half, like Altamira E-commerce fund lost 90% of their value in 2001-2002.Time has changed and the web 2.0 has seen the emergence of new sexy players such as YouTube, sold to Google and Facebook, just to name a few. I just read that Facebook’s value has triple in 2010 only.  Social networks are the new sexy sector and now you can find a 4 years old firm like Zynga, which is a social video game firm, with a value higher than Electronic Arts, which is 28 years old firm in video game.  Zynga is now valued on the secondary market at $5.27 billion on SharesPost, where Zynga employees can sell shares that they own in the private company. EA is worth $5.24 billion in public trading on the Nasdaq stock market. The SharesPost listings are thinly traded compared to EA’s stock, but it is perhaps the only real measure of the value of Zynga’s stock at any given moment. Several hope that Zynga will go public, but it hasn’t any plan yet.

I simply don’t understand why people will pay real dollars to use virtual currency in virtual games. Zynga is expected to grab roughly a third of the $1.6 billion market for virtual goods in the U.S. in 2010,  thanks to virtual goods sales.  Zynga got the momentum when in the middle of 2009 they launched FarmVille, which is still the No. 1 game on Facebook with 57.4 million monthly active users. With such popular games, Zynga can cross-promote its titles and advertise them as well, allowing it to turn lots of its games into huge hits. In addition to FarmVille and Texas Hold Em Poker, FrontierVille, Mafia Wars, Cafe World, Treasure Isle and PetVille all have more than 10 million users. Overall, Zynga has 214.5 million users. CrowdStar has 54.2 million monthly active users, and EA is No. 3 at 44.7 million users. EA bought Playfish for $400 million in the fall of 2009, but is still behind Zynga in that area.  However, EA’s online game revenue is at $750 million in the current fiscal year, or around 20 percent of overall revenue, is significantly bigger than Zynga’s online game revenue, which the only source of revenue of Zynga.  The largest independent maker of video games is Activision Blizzard, which has titles such as World of Warcraft.

It appears that the market values Zynga as equal to EA in market share, so it is deeply discounting the rest of EA’s nearly $3 billion or so in traditional video game console and PC game revenues. It seems that Zynga is truly overvalued and in some sectors of the Internet, like the Web 2.0 we are in the presence of a second Internet bubble.

Another example of this is Apple, which has 83% of the market capitalization of Exxon Mobil.  Apple has a P/E ratio of 20.8 and Exxon a low 12.8.  It is true that Apple is one of the best innovator in the world and has created a dependency for its customers toward its proprietary platforms, such as iTunes and Apple Apps store.  Apple is more a telecom firms and a content firms than it was before, as a hadware firm.  The potential of its mobile advertising network is huge.  The question is can Apple create on the long-term 83% of the profits of a firm, such as Exxon Mobil?  I explained in previous comments that the dependency of Internet mobile can create huge values.  However, I have a certain doubt that it would represent a long-term oligopoly, such as gas with Exxon Mobil.  We are much more dependent right now (and in the medium term) toward gas than toward Internet Mobile access and its ecosystem (apps, music, etc.). In a bubble it won’t mean that P/E ratios will diminish in the short-term, but in the medium and long-term, there will be important depreciation of overvalued Internet stocks.

Update 03/27/2012 : ok I did a complete strategic, financial and technology analysis of Apple at the end of 2011 and I changed my mind.  See my articles on Seeking Alpha.   I bought Apple at $397 in December 2011 and it was one of my top tech stock recommendation.  With over $80 billions in cash, the stock has a very low real P/E ratio and a very attractive PEG ratio.
Louis Rhéaume
Infocom Intelligence
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