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Is the Seattle area's tech boom really just a bubble?

With the stocks of local biggies faltering, how susceptible is our region to a sudden, precipitous drop in the market?
Plans for Amazon's proposed bubble buildings in Seattle's Denny Triangle neighborhood.

Plans for Amazon's proposed bubble buildings in Seattle's Denny Triangle neighborhood. Photo: NBBJ

A maker of virtual reality helmets sells to Facebook for over $2 billion, without a single product on the market. A mobile messaging app fetches $19 billion. Pop singer Justin Bieber graces the cover of Forbes Magazine, cast as a promising venture capitalist. Package delivery via drone is discussed with a straight face, as is connecting Third World villages to the Internet using balloons. 

Things have taken a turn for the cartoonish in the tech world, to the point that TV’s best new comedy relies on Silicon Valley for both its name and jokes. Wall Street, after years of getting high on the industry’s fumes, has begun to take notice. The phrase “tech bubble” is appearing with increased frequency in the press, and the climate for tech stocks is getting markedly chillier.

While this has been cause for tension in Northern California, Puget Sound companies aren’t insulated. Investors are questioning Amazon’s stratospheric valuation in the face of low profits, especially as Chinese e-retailer Alibaba eyes an IPO. Newer companies like Zulily and NanoString have taken a pummeling in the market in the past few weeks, with both now trading at about half their 52-week high. Perennial blue chip Microsoft has stayed the course, but ex-CEO Steve Ballmer admits the company is unsure of its next act.

The tech industry has been a steady economic engine for the Puget Sound, especially since the recession hit. Seattle councilman Mike O’Brien calls it the region’s prime creator of high-paying jobs. Mayor Ed Murray and local real estate experts cite it as a driver of the housing construction boom.

To some extent, many of the region’s cranes and construction sites represent a bet on tech industry’s continued growth. But what would happen if that growth slowed down, or even reversed course?

“This Time is Different”

That’s the catchphrase of every bubble. But in this case, there are reasons to believe it.

To be sure, evidence of a modern tech bubble abounds. Business Insider columnist Jim Edwards laid out a comprehensive argument in January, citing 1990s levels of IPO activity, an intensifying boom in tech investment and an ominously robust NASDAQ. Prominent hedge-fund manager David Einhorn made waves last month by stating there’s “a clear consensus that we are witnessing our second tech bubble in 15 years”, observing that many tech valuations are wholly divorced from reality.

But Mark Schill, research director at Praxis Strategy Group, notes that “tech company” doesn’t mean what it used to. Where once it largely applied to dot-coms, high technology now has a role in nearly every business sector. In this respect, he said the Puget Sound has a firmer grip on the market than other regions.

“Is Boeing a tech company?” asked Schill. “They employ a massive number of engineers and computer scientists. How about Amazon? They’re a retail company if you look at them. How about Fred Hutchinson, or all the data and IT-focused firms in the area? … The region is highly concentrated with talent, both in the common definition of tech, but also these other areas.”

This diversity represents an ace card going forward, he said. Schill worked with Forbes to compile a list of the top tech performers in the U.S. Bucking conventional wisdom, the Seattle area was named the country’s “most consistent performer” in tech job growth over the past decade, with a 43 percent increase in tech employment and an 18 percent increase in STEM-related jobs. The local industry’s not minting millionaires like Silicon Valley, but it’s a steady success.

To many investors, all this talk of a tech bubble is just that. Where stocks like Pets.com may’ve seemed like a get-rich-quick ticket last time around, no intelligent person is betting their retirement savings on Twitter stock these days.

As venture capitalist Marc Andreesen told the Wall Street Journal earlier this year, “Bubbles are a very specific phenomenon where you’ve got mass psychology and you've got every mom and pop investor and every cabdriver and every shoe-shine boy buying stock….There's nothing like that. We're talking about a fairly small number of companies. And then, we're talking almost entirely on the private side.”


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Comments:

Posted Tue, May 13, 1:56 p.m. Inappropriate

Dick Conway.

afreeman

Posted Thu, May 15, 2:08 p.m. Inappropriate

"Things have taken a turn for the cartoonish in the tech world."

Clarke's 3rd law: Any sufficiently advanced technology is indistinguishable from magic.

Rephrased - Many or most in the general public finds most innovation terrifying due to its disruptive nature (AKA it forces change). As a result they ignore or downplay new ideas reflexively, as a way to cool their anxiety. Any sufficiently advanced technology is made to seem indistinguishable from cartoon reality, lest we be forced to embrace endless change.

"Things" are only "cartoonish" in the tech world right now only because people say they are cartoonish. If we simply went with what was possible, most efficient, and best-performing, it wouldn't be cartoonish at all. It would be better.

nullbull

Posted Fri, May 23, 3:37 p.m. Inappropriate

Afreeman: Fixed it. Thanks for pointing that out.

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