Is the UK tech bubble really about to burst, or is it merely deflating...?

by Startacus Admin

As speculation about the fate of the uk tech industry continues, Amit Shah, CEO of HIROLA, weighs in...

It’s no secret that investment in tech is declining globally, and it has been for a while. The number of deals being closed is at its lowest since 2012. Some commentators are speculating that the tech bubble is about to burst in a manner not dissimilar to the dotcom bust in 2000.

However, the decline in tech deals happening right now is steady and understated. I would argue that, rather than bursting, what is happening to the tech bubble is merely a gradual deflation to levels of sensible and sustainable growth. Whether it continues to deflate or whether it has the potential to re-inflate to its original size – or bigger – is something that remains to be seen.

In addition to there being fewer tech deals, the deals that are happening are much larger. There is a growing starkness between the huge acquisition deals of tech giants, such as Facebook and Google, and the smaller scale investments in start-ups and scale-ups. 

Part of the reason for this is public perception of tech, with the consumer becoming more and more turned off by the ‘app overload’. The Apple slogan, ‘there’s an app for that’ has become a satirical commentary on the over-saturated market and the vast number of new apps being created by individuals certain that they have created the next Facebook. The public is weary of being repeatedly presented with the ‘next big thing’ in tech, and marketing campaigns for non-tech brands have been capitalising off the back of this.

However, public opinion is and always has been subject to change. On top of this, it is important to account for life-cycle of certain start-ups and apps in the long run. This is particularly true for apps that rely on having a large user base in order to work successfully; these slow-burners will take a while before they reach the heights of the biggest names in tech. After all, Mark Zuckerberg’s empire wasn’t built in a day.

What’s more, there are particular industries which appear not to have been affected by the deflating tech bubble. Recruitment and fitness seem to be bucking the trend, with persistent growth in both areas. For example, the continued development of new fitness tech, such as wearables, means that, for the fitness industry at least, there is still a huge amount of potential for the growth we are seeing at present to continue, and even accelerate. Industries such as these demonstrate the unpredictable nature of the tech market and consumer attitudes. 

What this means for the tech bubble then, is a period of uncertainty. The deflating of the bubble is a gradual process; it could spell the end of the tech boom, but there is potential for it to recover. This is particularly true in the UK, where Brexit negotiations could spell either disaster or good fortune for the UK’s tech industry. Only time will tell... 

At present, the deflation of the tech bubble that we have been seeing in the UK is one of the more subtle among the global markets, particularly in comparison to the rest of Europe. Even so, more recently, tech companies have been relocating or looking to relocate to elsewhere in Europe. Depending on the economic circumstances surrounding the UK’s exit from the EU, we could see this process being reversed, or massively increased. The economic fate of the UK could drive the companies with the funding to relocate out of the UK for good, or attract more businesses and more investment, if the UK does become a tax haven for corporations, as has been speculated.

Despite all this uncertainty, it remains true that the tech bubble is currently shrinking, and has been for a while. However, to suggest that it is ‘about to burst’ is too simplistic an interpretation of a complex and relatively new, and therefore unknown, industry. There are many factors which will feed into the fate of the UK tech bubble, Brexit being one of the more significant ones. We could well be looking at a turning point for the UK tech industry, and it doesn’t necessarily have to be for the worst – after all, there is still more money flowing into new businesses now than at the start of the dotcom bubble.

Deflating or not, this is a momentous time for the tech bubble."

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Published on: 3rd August 2017