This Tech Bubble Is Different

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Even if Cloudera doesn't find a cure for cancer, rid Silicon Valley of ad-think, and persuade a generation of brainiacs to embrace the adventure that is business software, Price argues, the tech industry will have the same entrepreneurial fervor of yesteryear. "You can make a lot of jokes about Zynga and playing FarmVille, but they are generating billions of dollars," the Flite CEO says. "The greatest thing about the Valley is that people come and work in these super-intense, high-pressure environments and see what it takes to create a business and take risk." A parade of employees has left Google and Facebook to start their own companies, dabbling in everything from more ad systems to robotics and publishing. "It's almost a perpetual-motion machine," Price says.

Perpetual-motion machines sound great until you remember that they don't exist. So far, the Wants have failed to carry the rest of the industry toward higher ground. "It's clear that the new industry that is building around Internet advertising and these other services doesn't create that many jobs," says Christophe Lécuyer, a historian who has written numerous books about Silicon Valley's economic history. "The loss of manufacturing and design knowhow is truly worrisome."

Dial back the clock 25 years to an earlier tech boom. In 1986, Microsoft, Oracle (ORCL), and Sun Microsystems went public. Compaq went from launch to the Fortune 500 in four years—the quickest run in history. Each of those companies has waxed and waned, yet all helped build technology that begat other technologies. And now? Groupon, which e-mails coupons to people, may be the fastest-growing company of all time. Its revenue could hit $4 billion this year, up from $750 million last year, and the startup has reached a valuation of $25 billion. Its technological legacy is cute e-mail.

There have always been foundational technologies and flashier derivatives built atop them. Sometimes one cycle's glamour company becomes the next one's hard-core technology company; witness Amazon.com's (AMZN) transformation over the past decade from mere e-commerce powerhouse to e-commerce powerhouse and purveyor of cloud-computing capabilities to other companies. Has the pendulum swung too far? "It's a safe bet that sometime in the next 20 months, the capital markets will close, the music will stop, and the world will look bleak again," says Bridgescale Partners' Cowan. "The legitimate concern here is that we are not diversifying, so that we have roots to fall back on when we enter a different part of the cycle."

Vance is a technology writer for Bloomberg Businessweek.