Facebook's Era Is Over; Now What?

Facebook's Era Is Over; Now What?

WRITING ON THE WALL , The Wallstreet Journal
January 9, 2013, 11:39 p.m. ET

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It is nice to see shares of Facebook Inc. FB +5.00% break $30 again, though they still are down nearly 20% from their offering price.But investors have moved on.We are looking for the next big idea. The social-networking company's initial public offering in May might have been the high-water mark of technology's new wave: a resurgence in life-changing technologies marked by social-media platforms and mobile delivery built around the Internet.

The symbols of this new wave included Groupon Inc., Zynga Inc., LinkedIn Corp.LNKD +2.24% and Pandora Media Inc. P +4.83% Excitement over this generation of tech companies and ideas spurred innovation, changed lives, made their founders stars and fueled a much-needed wave of deals.

Last year brought 81 technology IPOs valued at a combined $29.3 billion, or more than three times the volume in 2008, according to Dealogic.

Even better, it made Wall Street relevant again by reminding a bailout-weary nation of the industry's role in fostering American capitalism.

Still, we seemed aware that it was too good to be true. The question facing the industry wasn't if there was a bubble, but how big it was and how long it would last.

Since Facebook stumbled out of the gate, however, things have been awfully quiet. There hasn't been a significant Internet tech offering. Even worse, there hasn't been any sustained buzz about anything in Silicon Valley, much less the next potential IPO.

(Except for Twitter. It has been seven years. We're still waiting on Twitter.)

It is true that venture-capital funds had their best fundraising year in 2012 since 2008, raking in a combined $20.57 billion.

But some leading voices in Silicon Valley sound downright despondent about what isn't happening there. Michael Arrington, entrepreneur and founder of TechCrunch, said in a year-end lament about the lack of new ideas that he "was bored."

"I just don't see the tons of crazy new ideas that I did a few years ago," he wrote, "things that are genuinely new and interesting."

The numbers back him up. Venture-capital fundraising fell to $3.29 billion in the fourth quarter from $6.2 billion in the second quarter. And the number of venture funds shrank by one-third to 42 at year end from a two-year high of 66 in the third quarter of 2011, according to Thomson Reuters and the National Venture Capital Association.

And those standard-bearers of tech's new wave? Since the end of June, only LinkedIn's share price is higher. Pandora is flat, while Groupon and Zynga shares have skidded.

Mergers and acquisitions are generally a sign of a booming market, but 2012 was a down year, with just $780 billion in deals, compared with $877 billion in 2010, according to Dealogic.

As bubbles go, this one had all of the staying power of a birthday balloon in a pin factory. Should we have seen it coming?

Probably not. The postmortems are pouring in, and the consensus is that what we witnessed was a flash in the normal course of innovation. The rapid success of the social-media and mobile new wave sucked up all the air in the room, perhaps to blow into the balloon.

Inventors, entrepreneurs and those who financed them wanted to create the next viral platform. The pursuit became, as entrepreneur Francisco Dao called it, an "echo chamber" far from "the forefront of technology" where real innovation is taking place.

Separately, investors on Wall Street were disillusioned by the empty promise of Groupon and Zynga. Facebook's stumbles and the suspicion that insiders "in the know" were looking to cash out before a crash became the final blow to confidence.

In the last 20 years, we have seen four separate peaks of tech bubbles (1995, 2000, 2007 and 2012). There will be another. It doesn't even need to work. We just need to be able to get excited about it.

Until then, we can just wait for Twitter.

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