Sexy Vampire Costumes and 8 Other Obvious Signs the Tech Bubble Is About to Burst

The tech bubble is about to burst because venture capital money is drying up, according to the Wall Street Journal, but the signs were there long before that. If you don't know what sexy vampire costumes, companies with silly names and Ashton Kutcher have to do with macroeconomics (and the tech bubble), then you've come to the right place.

There are fundamental reasons why the bubble is occurring. With interest rates near zero for extended periods, reducing the risk attached to "lost opportunity dollars," investors have sought other assets for their money. Last time around that was real estate. Now, for the second time in recent history, it's tech companies.

But that's the boring stuff. Here are nine non-quantitative signs that the tech sector has been in a bubble for a long time.

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Related:

• What Ashton Kutcher's "Two and a Half Men" Product Placement Fail Can Teach Startups
• Why Rdio's Free Music Streaming Service Is Doomed
• Why Groupon Looks a Lot Like a Ponzi Scheme

Sign of the bubble: booming business in frivolous non-essentials.

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2. One company, CircleMe, has developed a social network to connect you to yourself.

You can't make this up. Sure, Facebook is popular. Maybe there is room for Google+ too. And of course Linkedin for work. But Wikipedia lists hundreds of social networks -- including such oddities as Plurk, Taringa! and VampireFreaks.com. How many of them can possibly survive? Surely CircleMe, a social network whose main purpose is to keep track of what you, yourself, are doing on other social networks, cannot be one of them.

Sign of the bubble: Ideas that would be completely ridiculous in any other environment are being taken seriously right now.

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3. Angry Birds is valued at $1 billion.

Don't get me wrong. I love Angry Birds. But how many of the company's other games have you ever played? Not addicted to "War Diary Burma" or "Totomi"? Precisely. Besides, why does a company that is "insanely profitable" and can fund its own growth suddenly need to sell equity? I smell a naked money grab. And how is a company "worth" $1 billion when its revenue is only in the low millions annually? It gets $1 million a month from Android ads and zero dollars from iPhone users after the initial purchase.

Sign of the bubble: Valuations far outstripping revenues.

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4. Too many daily deal services.
Sure, you've heard of Groupon and Living Social. But what about Krillion or Spreebird or YP.com or Woot or SaleCamel or DailySteals or SlickDeals or Zexzoo or DealChicken or Dibbsly or Rue La La? Even Glenn Beck has one, it's called called Markdown. There cannot possibly be enough demand to fill all this supply. And did I mention that the biggest of them all is a Ponzi scheme?

Sign of the bubble: Heated competition in commodity service categories where there are low barriers to entry, low customer switching costs, and thus low margins.

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5. Companies are using accounting tricks to make themselves appear profitable.

Groupon wants investors to look at "Adjusted Consolidated Segment Operating Income," which shows a profit because it ignores the company's routine operating costs. FriendFinder Networks asks investors to looks at "income from operations" and "adjusted earnings," which ignore the company's debt payments, instead of focusing on its negative bottom line. Linkedin spent years telling people it was profitable when it was not. Demand Media asks investors to look at its amortized expenses, rather than its actual cash expenses, to fathom its results. Zynga wants us to accept amortized revenue, but it moves the goalposts if that revenue falls short.

Sign of the bubble: Profits are profits. If you can only make them appear through trickery then you're not making money.

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6. Too many free music services.
Rdio, started by a founder of Skype, joins Pandora, Spotify, Mog, the pay service Rhapsody and dozens of others in a competition for revenues in the music service category. But the bottom line is that the cost of playing music in royalties tends to be more than the money you make from ads sold next to those songs.

Sign of the bubble: Companies trying to make money by giving away their core product for free.

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7. You can raise investment money simply by saying the word "Cloud."

The computing cloud business -- the idea that files should be stored in a virtual environment on someone else's powerful servers instead of on your desktop, and that your devices simply access them as needed -- is in a bubble, according to InformationWeek, because some companies are raising seed money simply by attaching the cloud concept to their business pitches:

"I do see companies raising money using the keyword 'cloud,' which gives them a valuation increase of 30 to 40%," [Brad Hargreaves, a partner at New York technology incubator General Assembly] said. That's partly a phenomenon of hype, he said, even though "the reasoning about why cloud brings higher valuation is ultimately based in reality," he said.

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Image by akakumo, CC.

8. Ashton Kutcher believes he is Peter Thiel.

There's an old rule about investment bubbles, which is that when non-experts start offering you investment tips, get out fast. It happened in real estate, when taxi drivers, hotel doormen and strippers suddenly began flipping real estate. And it happened in the dot-com boom of the late 1990s, when your mom began asking you about tech stocks. And here comes Ashton Kutcher, star of Two And a Half Men, with his portfolio of startup investments.

Sign of the bubble: Everyone's suddenly an expert.

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9. Too many silly names.

Chegg? Uber? Hipmunk? Drang? Blauk? Fotki? These are all real company names, except for one. Guess which.

Sign of the bubble: If you can't tell which company has the ridiculous name I just made up on the spot, then you're in a bubble.

*Answer: It's the fourth one in the list.