I’ve been thinking a lot about oil lately, not surprisingly. I’m convinced its price is approaching bubble status but based on the reasons for its rise, it may not have quite reached the point of popping. Some analysis has almost 50% of oil’s price increase solely based on the depreciation of the dollar, so this among other reasons, there are fundamental reasons for a price rise independent of speculation. This said, bubbles are believed to be psychological creations and a seminal event typically causes it to burst with consumer and investment sentiment turning on a dime. I’m looking for this event now.
I remember the moment the Internet Bubble of the late 90’s burst. It started with an unlikely player — Microsoft. When a finding-of-fact came against them in their anti-trust case, it sparked a sell-off in the NASDAQ that didn’t stop for a couple of years. Microsoft wasn’t a high-flying dot-com, but being tied to technology in general, investors ran for the hills when it appeared that technology stocks may take a hit from a wounded Microsoft. In the weeks following, the NASDAQ dropped 50% and my friends in the VC and investment community told me the party was over. They were leaving San Francisco and going home to New York. One nice effect was rent in SF dropped with all of these NY ex-pats packing up and going home.
So what will be “the event” to cause the Oil Bubble to burst? As seen with the dot-com bubble, it won’t necessarily be something directly tied to the oil industry (or its supply and demand) but will be something on the periphery that will cause sentiment to change. Some possible candidates:
- an Enron / Bear Stearns style collapse of an energy trading company due to oil futures bought on credit (can happen with just a modest decrease in oil prices as futures can be bought with only 5% down)
- a report showing a major consumer sentiment shift in willingness to change their lifestyles to avoid oil (this doesn’t have to be an actual drop in demand, just a willingness to)
- impending political change in US that will result in an obvious shift in the current energy policies (read: no more Bush / Cheney cronies in charge)
- Chinese currency revaluation / signs of a slowing economy / oil subsidies reduced (hard to see it happen on a large enough scale but if the Chinese have to pay more for oil, their demand may appear to be decreased — again an actual decrease in demand doesn’t have to happen, just an appearance to let markets be bound by market forces, not the government)
My sentiment about oil has already changed, as I sold my meager investment in energy stocks. It will be very interesting to see how oil prices change over the next 6-12 months and what may cause the bottom to fall out. As with all bubbles, you don’t know for sure you’re in one until it bursts. And then with 20-20 hindsight, you wonder how it got so big in the first-place.
I clicked on a web ad today! June 12, 2008Posted by geoffwolfe in : On Topic , add a comment
It's probably been over two years, but I actually clicked on one today. Because Gmail thinks I'm a spammer, I've been getting tons of delivery failure messages. Gmail served up an ad for help (for a price) for getting email accounts off spamming blacklists. Geez, talk about a perfect revenue scheme for Google. Practically shut down a user's account and then serve an ad for a vendor to help you fix it. Righteous business model. Not evil?
Despite Google's AdSense victory over me today, it has been a very, very long time since I clicked on an ad. Honestly, when was the last time you clicked on AdSense or a banner ad with the intention of possibly buying something? Seems to me that today's web ads (read adwords/adsense) could be built on a house of cards. I worked at Ask Jeeves when the banner ad business collapsed. It wasn't pretty — and it wasn't until Google devised contextual ads (with a large enough base of ads to allow specific targeting) that online ads became (a very good) business again. However, revenue for online ads is declining again, signaling the need for a disruptive ad model to spur new and robust growth.
The next generation of ad products will not only need to be contextual and targeted, but will need to be interactive. I need more than relevant hyper-linked text to get me motivated to look further. I need marketers to understand the social media I use and communicate with me the way I do. Use Twitter, FriendFeed, MessageDance, and even TiVo. Have my friends opt-in to show me what they liked. Engage in a conversation with me, if I choose. I know this is controversial and not fully-baked, but main-stream web users are quickly becoming desensitized to the current way of delivering ads.