Irrational Exhuberance or the Wisdom of the Crowd?

One from the archives: Circa Autumn 2012

With all the excitement surrounding the Facebook IPO at the end of the week I started work on a crop circle economic model to explore just how, and perhaps why, the markets over estimate the potential of the Internet.

It began with this rather complex crop circle diagram of the past, present and future of Google, Yahoo! and Facebook.


and yet when I began to deconstruct the commentary a rather interesting pattern emerged. Here let me show you.


By isolating the Google and the Yahoo! circles I discovered something rather surprising.

You see (as the blue circles suggest) the dot com speculators accurately estimated the relative size and market share of the online media market leader 10 years ago. They just picked the wrong company. It was to become Google. Not Yahoo!.

So what we now assumed to be irrational exuberance during the dot com craze perhaps under estimates, at least in retrospect, the ability of the Wisdom of the Crowd to predict aspects of the future scale of the market.

Which in turn leads us to speculate. Assuming the Wisdom of the Crowd has picked the size of Social Media market leader in 10 years time will it be wise enough this time to pick the company that will eventually win?

Or, put more simply: Has it learnt from its past mistakes?


The next question of course is 10 years on just how much more potential growth does the Internet Economy left in it? But we'll leave that one for another day.


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