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When I first learned of the app, Yo, and its $1.2 million dollar investment, I experienced a wave of nostalgia (if you haven't heard of Yo, check out our recap here). In my more youthful days, I often greeted friends using popular late '90s phrases like "What up, yo?" or "Yo, dude." 

So, seeing the word 'yo' enter mainstream culture again quickly sent me back to my youth. But after my initial reaction, I realized the app reminded me of something else I read about a few years ago—tulips.

In 17th century Holland, if you owned tulip flowers, you were considered to be important and successful. When a rare and particularly popular genetically-modified tulip bulb called mosaic was created, the tulip market bubbled because bulb prices skyrocketed far beyond their actual value. Merchants bought large numbers of bulbs with the intent to sell them the next season at a profit, further exacerbating the market. At the peak, one mosaic bulb could sell for roughly $90,000 in 2014 dollars. As more bulbs were grown and the market became saturated, the price of bulbs dropped dramatically, crashing the market.

Today, this series of events is famous as the first recorded economic bubble.

When Yo took the media by storm, I couldn't stop reading about it. Not because I was interested in the app itself, how it works, or why its security failed. But because it made me wonder what its popularity and large investment meant for the future of the app and tech economies.

As it turns out, my musings are in good company. When I asked Jud Bowman, CEO of Appia (the leading mobile user acquisition network), for his thoughts on the app, he too had been following the media coverage, and his initial thoughts were, "that I'm a bit indifferent to the app itself, if not a little amused, and I think it speaks volumes for the app economy itself."

I think Bowman is right—Yo does speak volumes about the app economy. But exactly what it says about the app economy is not clear. Is Yo simply another form of communication? Is it another example of our new 'tech-based' economy? Or are apps the new tulips—driving the tech economy into another bubble?

In this post, I'll delve into these questions. First, I'll define 'bubbles' and their characteristics. Then, we'll look at data on the current tech and app economies to see if they are presenting signs of a bubble. Finally, we'll talk about what this means for you—how to plan for your business's future regardless of whether the tech economy is in another bubble.


An economic bubble as defined in a Forbes article by Economist Bill Conerly is, "a run-up in the price of an asset that is not justified by the fundamental supply and demand factors for the asset." In other words, it's when goods and services cost and/or sell for more than they are actually worth. Economists and experts disagree on most aspects of bubbles, from how to predict them, what they look like, to whether or not they even exist. The two things everyone agrees on is that they can't be identified until they end (or burst), And when bubbles burst, the economy deeply suffers.

Are apps the new tulips? I first turned to Bowman, the founder of two influential app-related companies, Motricity and Appia. But perhaps more importantly, he's survived and thrived through bubbles and bursts. Both of his companies were created during or around the most recent two bubbles, the dotcom bubble of the late 90s-early 00s, and the housing bubble of 2007-08. And both companies evolved to respond to drastically changing economic conditions.

Motricity eventually became one of the first companies to design and sell a mobile content delivery platform. But when Bowman and a fellow high school classmate first built the product in 1999, it was a search engine for mobile devices. In 2001, both to survive the dotcom bubble burst and honor a client's request, Bowman and his partner pivoted. Motricity went on to control 70 percent of the mobile content software market and sell over $1B worth of ring tones in one year.

In 2008, Bowman left Motricity to found what eventually became Appia (Motricity sold off some parts of the business, filed an IPO and then reorganized under the name Voltari). Appia has now reached over 80 million sponsored app installs and is poised to have the Triangle's next big exit.

When I asked Bowman whether he thinks we're in a tech or app bubble, he declined to speculate. But he does see the market "heating up" and remembers as things were heating up during the prior two bubbles that, "there was an irrational exuberance and perception that things were going up forever."

What do the data say?

Bowman is wise not to speculate since bubbles can't truly be identified until after they end. The best we can do is speculate based on historical statistics, and typical bubble characteristics. The "irrational exuberance and perception that things were going up forever," that Bowman pointed to is one of the key characteristics most bubbles share. Other key characteristics of most bubbles, as identified by Forbes, include:

  • Prices: Dramatic and unpredictable rise and fall of stock prices
  • Policy: Stimulative monetary policy (low interest rates, etc.)
  • Money: Easy credit (from investors and banks)

While I can't speak to the attitudes of those in the trenches, and whether or not tech and/or app investors and entrepreneurs are currently "irrationally exuberant," I can provide some data for the other three characteristics to see if they show any signs of a bubble.


Stock market prices have been slowly, but steadily rising since the US economy hit bottom in 2009. Just last week on July 3, 2014, the Dow Jones Industrial Average surpassed 17,000 points, reaching an all-time high. This year alone, the Dow Jones has risen 2.3 percent, and the S&P 500 index and Nasdaq have risen 6.8 percent each. Stock prices for companies in the tech sector have also been steadily rising and are currently valuing about 20% higher than the stock market as a whole, as Google's Financial Analysis tool shows.

In a bubble, we would expect to see high prices that rose dramatically, similar to what the stock market is currently presenting. Both the most recent bubble bursts were also preceded by a sharp increase in prices. In 2000, the dotcom bubble burst after a five-year sustained rise in prices where the Dow Jones had more than doubled between 1995 and 2000. Following suit, the housing bubble collapsed in 2007 after the Dow Jones again doubled between 2002 and 2007.

All that said, in bubbles, prices are known as much for their fall as for their rise. Without a significant fall in prices, it's not clear whether a bubble exists or is forming.


If we were in a bubble, we could expect to see stimulative monetary policy from the Federal Reserve. Indeed, the Fed has been stimulating the economy through low interest rates since the recession. In this graph from Trading Economics, you'll notice a drop in U.S. interest rates after both the dotcom and housing bubble bursts. So the low interest rates seem to be more of a reaction to the failing market than a cause of a bubble. Interest rates are still low, so if low interest rates are a sign of bubbles, then this might be a sign one could exist. Or, it could just be a reminder that the overall economy is still limping along and our policies continue trying to fix it.


Whether it's from banks and creditors or VCs and angels, money is easy to come by for startups and established companies during bubbles. So if the app market is in a bubble, we would expect investments in companies specializing in apps to be increasing. Figure
2 shows investments in High Growth Venture (HGV) data from the Center of Venture Research at the Peter T. Paul College of Business and Economics at the University of New Hampshire.

The data does not separate out apps from the broader tech economy, nor does it separate tech companies from other types of high growth ventures, such as healthcare-specialized ventures. However, it does give a clear picture of funding entering the high growth, startup market. As seen in Figure 2, angel investments peaked in 2007 before the recession, and are rising again.

Interestingly, the average amount angels invested per high growth venture, shown in Figure 3, hasn't grown as fast as total angel investments. In 2013, the average was roughly $350,000, far below the peak hit in 2006 of over $500,000. In other words, the pie and number of slices in it are growing, but the size of the slices is declining.

As for venture capital, after hovering below $30 billion for the past four years, total venture capital disbursements could reach $36 billion this year if 2014's Q1 numbers continue, according to National Venture Capital Association (NCVA) data.

But the lack of growth in VC funds the past few years doesn't lend much hope for an influx of new money available to startups. These data seem to indicate money isn't as easy to come by as we would probably see if we were in a bubble.

Indeed, in December 2012, CB Insights predicted 1,000 startups would die because they wouldn't be able to raise a series A round. There is still little data to determine whether the research company was correct, but the fact such a shortage was even predicted indicates money may not be as readily available as it would be if we were in a bubble.

Yo and the Future

Not surprisingly, the data show a mixed picture about the possible future of the app and tech economy. While we see some typical characteristics of a bubble—prices are rising and interest rates are low—money isn't as easy to come by as one would think based on Yo's easy raise.

Given the average angel investment was $350,000 last year, Yo's $1.2 million seed round doesn't just seem high—it is high. It bucks the trend, and could either be viewed as an anomaly and not representative of app companies' ability to raise and receive funds, or as the beginning of a new norm for the app economy.

Bowman was surprised by the Yo raise, but also sees the side of the investors.

"My bet is the investors believe there is real monetization potential. Or don't want to miss out on the next Snapchat or Instagram," he said. "Maybe what's a little more surprising is that the founders decided to raise a large round in the first place here."

After all, how much money do you need to grow a business based on one simple message?

Why you should care

Following all the bubble talk can be exhausting and time-consuming—every week, a new expert has an opinion on whether we're in one.

And unfortunately, I can't definitively say we are or are not in a bubble.

But what I can confidently say, and have heard Bowman say in a lecture to UNC students, is that most goods and services hit a ceiling at some point. And so it's reasonable to predict that, regardless of whether the app or tech economy is in a bubble, apps and their distribution and some parts of the broader tech sector could eventually hit a ceiling.

When I asked Bowman how Appia would respond to a big change in the economy, he said, "We have transitioned from a content distribution network in 2011 to a leading mobile user acquisition network today. We remain focused on solving the mobile monetization and discovery challenge, but the definition of that changes quickly. We have set ourselves up to be agile enough to pivot with it."

As a side note, Bowman allegedly also keeps a Magic-8-Ball sitting on his desk, which right now says, "Signs point to yes." So whatever their future holds, Appia has an 8-ball on its side—do you?

In all seriousness, is your company ready to pivot or reinvent yourself if the app economy reaches its peak?

If not, it could be time to start thinking about what and how you would transition if the app economy hits the ceiling. Checking in on the bubble talk occasionally is important because it could help keep your feet on the ground, and enable you to quickly change course if need be.

Hopefully, Yo is just a flash in the pan and isn't evidence of a decline in the app or tech economy. But it's always good to prepare—the last thing I think anyone wants is to be left standing holding a bunch of worthless tulip bulbs.

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