There’s little doubt that Jon Fisher, the entrepreneur turned business professor, has made some good calls. In May 2008, with unemployment at 5.4 percent, Fisher predicted that the U.S. unemployment rate would soar to 9 percent within 12 months. In April 2009, the U.S. unemployment rate hit 8.9 percent.
Last August, one month after Warren Buffett said that national unemployment could rise to 11 percent, Jon Fisher said no way -- the figure would peak at 10.4 percent and drop sharply thereafter, if it even got that high. As shown in the table below, the rate hit 10.1 percent in October and dropped to 9.7 percent in January.
While this trend may not hold, it’s worth taking note of Fisher’s predictions. He and his team at the University of San Francisco studied economic data and came to the conclusion that newly constructed private homes (a.k.a. housing starts ) are the epicenter of our economy. Not technology, not energy -- housing starts. He discovered that there is an historic inverse correlation between housing starts and unemployment; meaning one indicator goes up, the other goes down; and vice versa, leading to his predictions.
What does this have to do with Web 2.0? Fisher is an entrepreneur at heart and believes that entrepreneurs should build companies with the end in mind, meaning new companies should think about getting profitable and making exits.
Fisher’s dogma is worth considering. He has been an outspoken critic of companies like Facebook and Twitter Inc. because they are spending investors’ money and have yet to show a profit.
Here’s what Fisher said at the Commonwealth Club of California last year:
“I have no idea what these Facebook guys and other guys are doing… They have 400 to 500 million users and they’re still not profitable… If they’re looking to build a more and more successful company, why not get profitable a little sooner?”
Fisher predicts that Web 2.0 companies are heading into a danger zone, not just for them, but for global innovation. His contention is that they’re sucking the oxygen out of liquidity markets by taking away resources from those companies that really need the capital.
Who could possibly need capital more than Twitter and Facebook? Hmmm, let’s see: greentech companies, the healthcare industry, basic infrastructure? The fact is we are going to need smart grids, electric cars, rechargeable long-life batteries, desalination technologies, and the like.
Last summer I met Christina Lampe-Onnerud, founder and CEO of Boston Power, a maker of lithium-ion battery technology. She explained to me the intricacies of battery chemistry, the complexity of the manufacturing process, and the challenges of making the technology cost effective. But she said her biggest challenge was raising money. At the time, she had raised $70 million in venture capital and she was actively looking for more. She closed on another round last month, but the capital requirements of that business will probably demand further raises.
Meanwhile, Facebook and Twitter combined have raised hundreds of millions of dollars, and they run what are considered very capital-efficient businesses. The high-flying potential of these types of companies will compete with infrastructure-oriented investments that need more capital.
Not that greentech won’t get funded; it will, but perhaps not to the level that will make the U.S. as competitive as it could be. Meanwhile, there’s a decent chance that, as the economy rebounds, Twitter will get bought, Facebook will do an IPO, and the Web 2.0 frenzy will be alive and well.
But there's a risk everyone will have forgotten Jon Fisher again, until the next big crisis. By then we may well have missed a key competitive window.
— David Vellante spent 15 years at IDC and is a founder of The Wikibon Project. He can be reached on Twitter at @dvellante.
From WSJ Today: Housing Starts Rise to Highest Level in Six Months
Housing starts climbed 2.8% to a seasonally adjusted 591,000 annual rate compared to the prior month, the Commerce Department said Wednesday. Single-family groundbreakings and apartment construction both rose.
Economists surveyed by Dow Jones Newswires forecast a 5.9% increase in January housing starts, to an annual rate of 590,000. The pace of 591,000 was the strongest since July 2009. Housing starts have gone up three times in the last six months.
I agree with Jon Fisher that social media such as Facebook and Twitter are sucking investment. I don't really know or see what they are doing socially and there is still a high unemployment rate. This should not only be the government problem.
I think that those so called social media should focuss on helping people get jobs and live decent lives. But do they really care?
What's your view on government seeding new technologies (e.g. ARPANET)?
There's a fine line to walk there. As I said, I have a political philosophy at work in my views, and that philosophy stands pat even if government is capable of doing the job.
Now, having said that, ARPANET was a military project, despite the university involvement, and military activity is one one of the few roles specifically assigned to federal government.
The Tenth Amendment to the US Constitution has been ignored for far too long. With good intention? We all know where that road leads.
Government should enable and nourish an environment that brings out of private enterprise, not be a direct player in it, except where it intersects specifically assigned government roles.
There's a sub-topic that, it seems to me, has hardly been touched. Government involvement. And by that, I'm referring to direct government participation in funding and equities. I think that's been a major mistake from the beginning.
Jon mentions that he has been anti-bailout, and yet supports the idea of government providing funding (even if via loans). I definitely carry a political bias into that view, because, while it may end up working, I think it carries with it a precedent of government authority and intervention that is to our detriment once we look beyond strict financial and/or fiscal discussion.
I'm no financial expert. I don't think I could even declare myself very well educated on finance. But I look at the "bailout" of the US economy by J.P. Morgan in early 20th Century, and then I see the bailout of AIG, etc by the US Government, and I see what is to me a disturbing likeness. A kind of obverse pair of circumstances that I strongly suspect arise from the same spring.
I'd like to see government provide more incentive to private funding firms that gets them to invest in VENTURES, real efforts to drive innovation. I think real, serious risk management, not the heavily leveraged and highly risky stuff like Credit Default Swaps, etc, is a valid realm for VC firms and funds, and we should find ways to encourage that. What I don't want, what I think we've done far too often, is for federal government to become and active player in that funding.
Interesting premise. The investment numbers from Q3 2009 released by Cleantech Group and GreenTech Media both reflect increasing rates of VC investment growth in green and clean technologies (taking into account the drop off in ALL investments during the financial meltdown). This would seem to suggest that VC's continue to invest in sectors, industries and new ideas where they see a good rate of return in a 3-5 year window.
Mary, I do (not) think most VC’s can afford to invest in cleantech, etc.I think Secretary of Energy Chu and the administration is doing exactly the right thing making loans to cleantech, etc. even if they really can’t afford to either!I thought I would note I have been fiercely anti-bailout from the beginning that is a big reason I jumped into some of the forecasting but cleantech, etc. investment is the one area I think should be assisted.
The factors that I think will break the VC loss are:(1) VCs investing smaller amounts of money.The NVCA confirmed the media age of a VC-backed company at IPO was 8.6 years in 2007 (now, of course, it’s 11 years!) but the really interesting data is the average value of founder stock at IPO was only ~$6.5M.My fellow co-founders would much rather keep 51% control of our company and sell for ~$50M to make the same money in arguably 1/3 the time with 1/10 the risk but that’s a conversation for another time.(2) 50% of VCs need to suspend and/or shut down, go teach business school at least until the market can again support the current number of firms.
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I had the opportunity recently to meet with Jeff Kubacki the CIO of Kroll, a global risk management consulting firm and a unit of Marsh & McLennan Companies with more than 50 offices worldwide. Kubacki has been the CIO of Kroll for about three years and seems to have a good process for aligning IT strategy with business priorities.
At Twitter’s Chirp developer conference last week, the company confirmed that Twitter has more than 100 million registered users, 300,000 new users per day, and 180 million unique users per month. So I guess it’s inevitable that Twitter would finally start to “grow up.”
The Twittersphere is buzzing with rumors that Yahoo Inc. (Nasdaq: YHOO) is considering shelling out $100 million for Foursquare, the hot startup du jour that offers location-based services.
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