Uh oh …. Tech Crash 2.0?

I fully anticipated the 2000 Tech Crash, due to the insane spending of dot.com startups with no products and no clear business plan. Having been part of a venture-funded startup in the early 1990s — one that took five years to run through a grand total of $7M of venture capital — I heard big warning bells every time I read about dot.coms that burned through that much each month. I knew things would get ugly, and they did.

That’s not just hindsight speaking; I cashed out all my stocks in February 2000, and I have a long-time acquaintance who still thanks me when he sees me every few years because he did the same based on my concerns, preserving his retirement. And while I’ve seen some rumblings about “Tech Bubble 2.0” on the net, I haven’t seen that much to get me concerned.

Until now:

VMware, a company recently known only to hard-core technologists, debuted as the darling of Wall Street on Tuesday, with an opening-day surge that exceeded even Google’s historic 2004 launch.Stock of the Palo Alto maker of “virtualization” software soared 76 percent, eclipsing Google’s 18 percent first-day gain. VMware’s value at closing was $19.1 billion – ranking it as Silicon Valley’s third-largest home-grown software company after Oracle and Adobe Systems. It was the largest initial public offering since Google achieved a $27 billion valuation….

The market’s enthusiasm affirmed a Silicon Valley consensus – that VMware, founded in 1998, has pioneered an increasingly significant “virtualization” industry, developing software that dramatically enhances the computing power and flexibility of servers and other technology infrastructure, while controlling costs and energy consumption. VMware derived its name from the term “virtual machines.”

Major corporations have embraced the technology, spurring VMware to dramatic growth. Today, it has more than 3,000 employees worldwide and is on pace to exceed $1 billion in revenue. When EMC bought it 3 1/2 years ago, it had about 370 employees and less than $100 million in revenue.

VMware has nearly doubled in size almost every year since it was founded in 1998, Greene said.

A $19B IPO valuation for VMWare? When Microsoft and Sun, among others, are competing against it? Look, I have my own complaints about Microsoft, and I think they’ve lost a few steps from their more intense posture a decade ago, but I still have to go back to Guy Kawasaki’s classic comment: competing against Microsoft feels like putting your head in a vice and tightening it, then tightening it some more. Operating system software is one of Microsoft’s two core markets, and Microsoft has a long-established and well-deserved reputation for letting others pioneer key technologies and then using its mass and distribution channels to shove them aside. And others are jumping in as well.

My congratulations to the VMWare founders and investors — they’ve won the “Nerd Lottery”, to use Bruce Henderson’s wonderful phrase — but I smell irrational exuberance in the air again for the first time since the end of the last century. And giving the on-going meltdown in the credit markets due to the subprime collapse — which Bruce Henderson has been documenting here for nearly a year — the timing couldn’t be worse.

Now I’m worried. ..bruce..

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Category: Economics, Information Technology, Main, Recession Watch