What do I mean by bubble? For my purposes, a bubble exists when prices of some commodity are increasing at a blistering pace that becomes disconnected from reality. Most of the time we fail to recognize a bubble because we think "this time it's different." This time is NOT different.
What are the signs of the bubble? Two key things I see include:
- Google paying outrageous retention bonuses to keep people from leaving for Facebook (see here)
- Startups, less than two years old, with very little user traction and no revenue, getting acquired simply for talent, at valuations that give even the front-line engineers a seven-figure outcome. (I won't provide any links here because I don't want to point too many fingers)
Maybe even more importantly, though, the key anecdotal indicator of a bubble is when it becomes "common sense" that prices will always go up or sustain the current market. That is what I am seeing more and more every day now - software engineers saying they're sure they can start a "company", sit in their apartment for a year, and then get acquired by Facebook for $10 million.
The unfortunate thing about a bubble is that it always bursts. You can argue that this bubble won't burst, because the number of software engineers is relatively fixed, and the demand is going up pretty drastically these days. However, a few years ago, people argued for the real estate bubble by saying "they aren't making any more land". That bubble didn't burst because supply expanded, it burst because demand collapsed as the ability to pay fell through the floor.
This is going to end, and badly. There are a lot of engineers who are going to make serious life choices based on current trends, and in a year or two, when this blows up, they will find themselves unemployed and without savings.