05/04/2014 Talking Business with Linda Yueh

investigating her. More on those stories at the top of

the hour. Now on BBC News. It's time for Talking Business, with Linda

Yeuh. The US tech stock market is climbing

rapidly with some of the biggest share sales since the dot`com bubble

burst in 2000. It is not just US firms like Facebook but global

companies have also announced public offerings such as Chinese e`commerce

giant Alibaba. Are these signs another bubble could be forming? In

Singapore, I am Linda Yueh, and we are Talking Business.

Welcome to the programme. Before we hear from my guests, US stocks have

soared on the back of tech companies and continue to hit new heights.

2013 saw the most initial sale of shares to the public since 2000. At

the last peak of American markets, 222 companies went public, 45 of

them were tech companies. This month the US tech stock index, the NASDAQ,

has hit the highest level since the dot com bubble over a decade ago in

2000. When the bubble burst, within a year, the NASDAQ lost more than

half its value, plunging the US economy into recession. As markets

are nearing those dizzy heights, is there a tech bubble, or are there

fundamental differences in these companies now? Joining me today to

debate this are two experts specialising in technology firms,

Andrew Milroy, vice president of information, communications and

technology research at Frost and Sullivan and Naveen Menon, head of

communications, media and technology at AT Kearney. Welcome. We start

with you. Is there a tech bubble? I fundamentally do not believe there

is a tech bubble. Things are fundamentally different from 2000

and today business models are different. The environment is

different. What about you? Right now, no, but I think it is a risk.

Some of these stocks are currently overvalued. Some companies are very

highly valued at the minute. They are overdependent on one source of

revenue, namely advertising, so I think a lot of the social media

stocks are currently overvalued. As more of them go public, there is a

risk of getting into bubble. `` getting into a bubble. You do not

agree with that, do you? Broadly classifying social media as a

sector, and saying they are overvalued is possibly inaccurate.

What you're looking at is tech companies that have very diversified

businesses. You have companies like Square that are looking at mobile

payments, you have companies like Alibaba that are more e`commerce

businesses. I think people look at the Facebook`WhatsApp deal and say,

that was really expensive so we have to be in a bubble now. I do not

think that is the case. Is that what you're saying? I think the point is

right. A lot of the tech companies that have gone public now have more

to diversified business models. You cannot argue with those valuations.

But if you look at Facebook alone and its valuation, which is greater

than the GDP of Vietnam, a country 90 million people, it seems a bit

much for a company that is dependent on advertising. As more of these

companies go public, that slice of the advertising pie is fragmented.

Twitter is there as well. It is being diluted. Is this sustainable?

How much advertising spend is out there? You might remember, in 2000,

and in 1998, my mother and my father and my grandparents were looking at

IPOs and trying to buy stock. I do not see that kind of phenomenon.

Definitely there are some cases of companies that are trying to raise

money through public markets, but you do not see it turning into a

frenzy of activity around possibly not so well`educated consumers going

and buying stocks. If you look at venture financing companies that are

funding new ventures, in the late 90s and in early 2000, there was a

lot of money around, cheap money, which could be used to fund

ventures. Nowadays, people do not fund ventures unless the company is

making real profits. I think it is a little bit overstated to say, maybe

they are going to collapse and we are in a bubble. The fundamentals

have changed. Sure, but I think there are sectors of the market

where this is happening. The fundamentals were not in place for

Twitter. It was not making a profit and huge amounts of money were

invested. With Facebook it was similar. It is making profits, but

not huge ones. I would even go so far as to argue that Google, to make

a comparison that an ordinary person might understand, it is valued at

greater than the gross domestic product of Malaysia. Again, it seems

to be overvalued, given that prematurely generates revenue from

advertising. We assume it will have other successful revenue streams put

in place as it makes a variety of acquisitions. That is a pretty

strong argument. It sounds a lot like 2000. Companies that have not

made a profit are being highly valued in the market and investors

are piling in and buying their stocks. It sounds like the dot`com

bubble to me. Let's take Alibaba. It is going for a public offering soon,

trying to raise money from people like us. They are making $230

million of profit now. Back in 2000, we had pets.com. That was one of my

personal favourites. There was no business behind that but it raised

about $600 million. During the Super Bowl, the biggest show in America,

prime`time TV, pets.com paid $2 million for an advertisement on

prime`time TV and it had no money to pay for it. These are signs of

bubbles. We do not see that happening now. I know you dismissed

the acquisition of WhatsApp, but for me, that is the sign of a risk of a

bubble, valuing the company that is making a relatively low amount of

revenue. I understand the logic, it is strategic, it is to stop Google

getting its hands on it, but that premium seems phenomenal. WhatsApp

was valued at $35 per user. In the bubble days, companies like

Geocities, they were valued at $640 per user. YouTube was bought by

Google at about $55 per user. In the dot`com boom, you had companies that

had $500 per user on the hope that they would turn profitable. I am not

convinced. Finally, we disagree on whether or not there is a risk of a

bubble, but if it bursts, will it drag down the US and the world

economy? Like it did in 2000? If there is a bubble, and if it bursts,

it depends if it deflates slowly or if it bursts quickly. It could have

an effect on global markets. I think I know where your concern is. It

could be that in the past, like in the 2000s, this bubble was largely

contained within a single market. I looked at some of the research on

this and there were quite a few Japanese businesses caught up in the

bubble last time around. You look at some of the companies. But it was

not as global as it is today? It was not as global. There is a more

global element today, particularly involving large Chinese companies. I

think there could be a worse situation, because the governments

have less to play with than they did now. Interest rates are phenomenally

low, so if this happens, the economy could be in serious trouble. We are

not there yet. There is a risk of that, that is my point. Policymakers

need to be aware of that and do their best to make sure it does not

happen. A great set of points. Thank you both very much. But what do

entrepreneurs themselves think? Singapore and Silicon Valley`based

start`up Viki streams videos and asks its community to translate

movies and TV shows from around the world. It was recently acquired by

Japanese e`commerce giant Rakuten for an estimated $200 million.

Earlier I caught up with its fouder, in San Francisco, and asked him what

makes this company innovative in a crowded field? I think about us as

global TV but powered by fans, and that means content from 100

different countries. Prime`time high`quality content that we

license. When you get the fans on it, all of sudden the market

opportunities for the content owners gets four times bigger. You get

Spanish on Japanese anime, you open up Latin America, you get Arabic on

Scandinavian movies. That is the concept. We are a global TV site,

but it is for the fans and by the fans. At the same time, it is great

for the content owners. They start growing in markets they did not know

existed. With the stock market rising, is this fueling incentives

for start` ups to be started just so they can list, make a big buck and a

quick exit? If they are starting for the wrong reasons it will be hard.

You have to be crazy enough to do a start`up to start with and to stay

the course gets harder and harder. It has to be a great idea. In our

case, it was not about a quick buck. There is a premium you have got to

give up to raise from the Valley. At the end of the day, you want to be

able to play the longevity game and keep going, and have staying power.

I think there could be opportunities for people to find a very specific

niche and there will be exit opportunities there. It is hard to

go to people like Facebook and say, did you know you were going to be

where you are today when you started? I'm not worried about that

aspect. Are you worried that when you look at what is happening with

stock prices for other Internet companies, you see them soaring

ahead, and remember a decade ago, when the dot`com bubble burst, it

did not hurt the companies that were listed, it dented the money going in

the tech companies? Does it worry you that it could happen again? What

worries me is that people might think it is a bubble. From the

company's perspective, there could be a defensive move. The

fundamentals of it might look solid but it might mean that people think

every other company is the same. I worry that people might think the

problems apply to everyone else. Is there a reason why you haven't

decided to go public and list, as you decided to be acquired? It was a

click with the opportunity. We were building the company we wanted ``

the way we wanted to build it. And to have somebody coming in with that

vision it was a special moment. It aligned. It gave me the opportunity

not to worry about fundraising. I felt like I was always fund raising.

So this was a chance to really go big.

Technology permeates our lives and the companies that are emerging in

the markets are offering a diverse set of online tools and gadgets

ranging from how we download music to everything else. It is changing

how we live our lives. How far and fast can an electric car drive. A

manufacturing company of a car can look like the tech firms. Can all

companies look like tech firms. Joining the our Mike two guess. ``

my two guests. Let me start with you. Tech companies seem to

transform the way that we live. Do you think that is an accurate

description of how tech companies are today? That is the goal and that

is why tech companies should exist, to make life easier. To make life

easier. They should make things that we do everyday much easier. It just

not be tech for itself, they should play a part in everyday lives. We

hear this term, digital economy. A sceptic might say, it sounds like

another term to me. One can actually ask the question, is it possible to

be in business from a tech company. Your own employees use technology

all the time. Your processes are all on computers. In many cases, your

systems use technology. Where do their `` where do the boundaries

lie? Are all companies just tech companies in some ways. Any company

needs to be founded in technology. I certainly agree with our friend in

Shanghai that companies need to look towards the purpose of technology.

The consumer. Ultimately, it is about delivering a product or

process of service that services a client or consume a in a more

efficient and effective manner. I know what your answer is going to

be. But there is a downside. To have technology pervading your life side,

there are still issues in terms of how much we become addicted to

technology. Absolutely. I built one of the first services in 1997, 1998,

for e`mail notifications to be delivered to SMS. I was the one is

the first people to use my technology but after a while I was

frustrated because I was becoming bombarded. I switched the

notifications. What is more important is that we have the

ability to do things but we all have to go through the process of knowing

that this option is available, but we have to know when to switch it

off. There is information overload. I would prefer that information be

made available and I guess going through a process of learning what

is important in life. Communications and notifications during mealtimes

and family times, when people want an immediate response, that is not

good. We need to train ourselves. It seems to me that the panel is in

broad agreement, technology pervades our lives. What does that mean for

the business model going ahead, how'd you future proof your

business? It is a big challenge for organisations. Not just tech

start`ups. If you look at companies by and large, they are falling

behind their customers who are adopting technology has a faster

pace than they can. They are falling in line because of technology

itself. What is happening today, organisations are being challenged

to keep up. It is a constant challenge to keep up with the

customers and they are not able to think creatively about what the

technology can do for the business model. In my view, the fraiche

disruptive technology should `` is a misnomer. It should be enhancing

technology. Henry Ford said, if he had listened to people, they would

have got a faster horse. Technology is all about foresee where the

consumer demand is coming from. Constant connectivity and

pervasiveness of technology and the availability of feedback data is

crucial to business understanding where its market is going to go. I

will put you on the spot, you are in this field, if you are looking into

the future, what would be the disruptive technology, all the

enhancing technology that we should be aware of coming up? I couldn't

resist putting in a quote. It is important not to look too far into

the future. The difference between a rich entrepreneur and a poor one is

that a rich one is two months ahead of time, a poor one is two years

ahead of time. So don't look too far into the future. There has to be a

business desire or a consumer desire. Just be a head of the curve,

not too far ahead. You don't have to look ten or 15 years into the

future. Only six months to one year. That is happening right now. The

start`ups happening right now and the one that will be successful,

right now. Transport, making travel so much easier. The taxi booking

applications, value shopper close, how you shop for books. There are so

many things going on. `` how you shop for clothes. That is really

what is going to change the world in terms of moving forward. What about

you, what is your pick? I agree in many ways that technology has a very

important role in making life easy for us. But I think it has a role

even beyond that. That is giving us hope. Hope for the less fortunate

mass of people around the world. Hope for the young people of the

world. I think technology has a very important role in helping people

create better futures for themselves in their society. Andrew? My bet

would be on the quantified itself. Only your own data and using that to

adopt lifestyle products `` adapt lifestyle products to what people

demand. He knew of the data owned the future. That is a lot to chew

on. Those were my guests. It is not just Internet companies like Chinese

e`commerce giant Ali Bala all Swedish company Spotify that are

generating interest. Here are some tech companies and gadgets. Wearable

tech is finding its way into our wardrobes. The company that makes

3`D headsets for gaming was bought by Facebook for $3 million. What

about iron man? And exoskeleton is being developed in Italy which is a

wearable robot that could not only transform lives but could help with

evacuation during earthquakes. And Allah is on says it is testing

drones for deliveries to customers. We will have to wait for that

service for permission from US regulators. `` and is on says it is

testing drones. Perhaps all companies are judged on

the basis of their technology and they are integrated into our lives

so it is different to the dot`com bubble. The answer certainly matters

certainly for investors and for all of us because another bubble

bursting could drag down the economy. That is all we have time

for. Check out our website and check out me, Linda Yueh, on the website.

That is Talking Business. The evenings are getting wetter and

wetter for some of you. Clear conditions in the