We all knew that the end of the dot-com bubble resulted in widespread failure of companies and the loss of many IT-related jobs. But until recently, there were few hard statistics to flesh out that assumption. Now there are -- at least for Silicon Valley, the heart of the bubble. They indicate that high tech is not necessarily the source of long-term jobs and suggest that the brewing mobile apps bubble could bust fairly quickly if startup funding continues to decline.
Ten years after the peak of the bubble, only one in six of the high-tech companies founded in 2000 still survive, and only one in three of the jobs created then still exist, according to a new study by the U.S. Bureau of Labor Statistics. Internet-related startups, the darlings of Wall Street, fared even worse: Only 8 percent, or about one in twelve, survived.
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But all new businesses have a terribly high failure rate, don't they? Not exactly. In the six-county San Francisco Bay Area, it turns out that about 30 percent of businesses started 10 years ago are still around, a survival rate that's nearly double that of high tech, says Amar Mann, chief regional economist in the bureau's San Francisco office. "You would have done better to open a restaurant," he says.
As interesting as the study is from a historical point of view, its real value may be more in the nature of a warning: Technology appears to have its own business cycle, and like all cycles it reaches a peak and then descends, sometimes very rapidly, to the bottom of the curve. Too much money poured into companies that hire too many people without a clear idea of how to make money is what creates a bubble.
Is mobile set to implode?
That's not to say that the mobile explosion is equivalent to the dot-com boom. It isn't. Investors and entrepreneurs have a learned a lot in the last ten years, and a typical mobile startup today tends to have a business plan that doesn't include shipping pet food across the country. Although hiring is brisk, salaries rising, and venture capital money flowing, it's nothing like the party at the beginning of the century. That gives some hope that the mobile boom won't implode as much as partially deflate.
The perception of a mobile bubble is fed by the examples of companies like Foursquare, which has secured more than $50 million in venture financing despite the fact that it is still trying to figure out how to make money off its mobile "here's where I am" service, according to Wireless Week.
Indeed, despite the common perception that anyone with an idea for a mobile app can get funded, it turns out that venture capitalists are not profligately throwing bags of money at entrepreneurs.