Technology is money whether it’s medical or social media. However the money may start running thin as people become so sure of success, they abandon precautionary measure.
Snapchat CEO Evan Spiegel may be one of those once-hopeful startups as his business model is brought into question. Their major investor Fidelity, the first company to back Snapchat four years ago, have just recently marked down their shares by 25 per cent. This move indicates the company doesn’t feel the brand deserves the $15 billion it has to its name. Fidelity investments have been back peddling with many of its other startups, cutting down many other investments from under half a million to devaluing Blue Bottle Cafe by almost $10 million.
With the simultaneous growth of Facebook, it’s assumed the cutdown came due to the lack of sustainability, that is to say, the lack of advertising opportunities. This revenue is critical for a tech company to get a hold of, especially for social media that is otherwise free. Twitter, Facebook, Twitch, Instagram, and YouTube all rely on revenue from advertising and optional subscription fees, and they all provide a platform that allows it. Snapchat, on the other hand, only has ads playing during their news segments for the various publications that have expanded such as Vice, IGN, Daily Mail, and Buzzfeed. This brings up a completely new concern for the social media app, succumbing to the currently growing tech bubble.
Private investors have begun to inject money into the tech industry at unprecedented rates in the hopes there will be a massive return based on their metrics or measurements. When the industry can no longer sustain itself and the investors begin losing money, there is a crash, and if you didn’t get out while stocks were selling high, you’re gonna be stuck losing money. Part of the problem lies not just with the fact investors are injecting money, but the rate at which they are, and without caution, letting many possibly failing businesses attempt a revival. They instead leave the success of a company to the consumer as they choose the better option. One example is Uber verse other ride-sharing apps.
Uber is not the only ride-sharing app, and many others have been the beneficiaries of major investors. Lyft has 26 investors, all of which contribute to a sizeable $1.01 billion, a mere eighth of what Uber’s 53 investors have pooled, and for a reason, consumers chose Uber as the popular option. Now Lyft has a time limit, it can hope for a windfall where Uber messes up, they lose the public’s trust forcing investors away, or Lyft comes up with a new innovation. If neither of these things happen, Lyft will run out of money, maybe not for a very long time, but eventually capital will run out. It happened in 2000 when AOL and Time Warner merged, the dot com crash, and unless the bubble is deflated it will happen again. When Lyft runs out of money, its investors lose money, and depending on how much it is they may need to readjust their spendings which affects their other investments, losing them capital, and in a twisted game of dominoes, companies can crumble in a matter of days. This is most assured to happen when it’s not just Lyft to fall, but all of its peers as well, constituting major shifts in investors.
Not everything will be buried, Amazon saw major drops in shares during the dot com crash, however, it is now one of the most successful online retailers to date. However the immediate effects could appear deadly to the tech industry, and if it can’t work its way out of such a frail state, only the companies that survived the crash will have the money to pay the best minds and produce the best tech, monopolising the industry and shooting prices up. – Christopher Pirina
Top photo of Snapchat on iPad by Jessica Heckley.