Red Bubble, Green Bubble

This post was inspired by, but isn’t solely about, the recent market panic set off by the release of DeepSeek.

I don’t claim to be able to pick which new technology fads will be winners. Sometimes bubbles deflate a little but ultimately stick around. These I’ll call green bubbles.

I do feel pretty confident however flagging the ones that won’t. The ones that are full of nothing but hot air. Some of which I learned by getting caught up in hype. I’ll call these red bubbles.

There’s a big grey zone in the middle where I happily claim to have no idea but I’ve seen a few signs that seem to correlate with a red bubble.

When the main narrative is a drastic reduction in costs.

The first sign of a red bubble is an overwhelming market focus on cost savings. B2B businesses thrive on saving costs, and for good reason. Less costs means more money in your pocket. That’s fine if you’ve built a business in a very specific niche that solves a well validated problem. Red bubbles are more often sold by a vague hand wave and a slide saying “save money”. The worst kind then tries to convince you that if you can’t get behind the narrative it’s because you’re dumb and just the kind of cost this technology might come after.

This has certainly been true in the recent AI mania. Until recently the main narrative was that a few very rich companies had access to a very hard to replicate model that would save you lots of costs. Its price was high but who were you to judge, you didn’t have billions to train your own model and the savings alone would justify things. Then DeepSeek came along with an open source model that was two orders of magnitude cheaper to produce.

When this happens the market attitude shifts. Suddenly the cost savings aren’t hidden behind a scarce resource. They become a commodity—relatively speaking. When this happens a lot of business models built on “pay us half an FTE and we’ll save you two” start to undercut one another and prices race down. There might be costs saved overall but the new technology shifts from value add to a utility service and valuations start to dive.

When you’re using the new tech, like it or not.

The second clear sign of a red bubble is the companies relentlessly pushing the new technology into their products. This happened when web3 went manic and it’s certainly happening now with AI. So many products are flaunting their AI features, changing their websites to be all about AI and, in many cases, forcing new AI features on users paired with a mandatory price increase.

It’s likely that the main driver of this forced use of new bubble technology is an appeal to investors. Companies large and small are often beholden to the whims of their current and potential investors. Investors who are just as human as the rest of us and able to be sucked into a hype cycle.

Once the major players add some hype technology to their main messaging, smaller companies are then forced follow along or risk looking like they are lacking, regardless of whether users actually want this new technology in the first place.

At the moment there seems to be a flurry of activity within tech product companies to be the first to claim that users love and will pay for their new AI. Google, Microsoft, Canva and many others have thrown together new features, forced them on their user base and then attempted to increase prices ‘justified’ by the new ‘value’ they have delivered to users.

I’d be willing to bet that if these companies launched their new features as paid extras the uptake would be far lower. The additional utility of any brand new technology hasn’t been well established by the very fact that it is brand new. When the marketing is about the technology and not the value being created, its a sign that the value may simply not exist at all.

When everyone is suddenly an expert.

The third clear signal of a Red bubble is the ratio of ‘real companies’ to self proclaimed ‘experts’. When you see LinkedIn, conference talks and consulting firms flooded with gurus its an early sign that there’s little substance behind the bubble. Consultants or the dreaded ‘thought leader’ aren’t inherently bad things, in fact in a well balanced market they are essential. In Red bubbles on the other hand they more often than not end up selling hype rather than real solutions.

If you’re willing to listen to what they’re selling it’s often pretty simple to determine if they’re just hype peddling or not. Red bubble ‘experts’ will point to high level concepts. About how nothing will ever be the same without pointing to concrete examples of something that will actually change. Similar to the first red flag, these experts often position their message so that anyone who doesn’t leave their talk a convert is falling behind or, in the worst case, stupid.

Like the other two signals of a Red bubble, this one seems to be primarily driven by people wanting to make a quick buck. It can be difficult to know if the drive is malicious or just ignorant but in either case these experts make money taking advantage of confusion and hype within the bubble. The worst offenders will shamelessly jump from one bubble to the next, previous web3 gurus now experts in AI and tomorrow the world leading expert on quantum or whatever takes over the zeitgeist next.

Bubbles aren’t bubbles forever.

Bubbles always end. Sometimes with a pop, other times with a Gartner hype cycle mimicking deflation into general utility. Those that pop, the red bubbles, can be massively destructive on the way out. It’s easy to look at the share price of the world’s largest companies and chuckle when they lose a big chunk of value. The reality is though that tied up in that fall is the savings of very real people. Sure, those people take a risk when they put money in the markets. Sure, those same people may have been key contributors to the hype. In either case, I’d much rather we didn’t have to correct other people’s poor behaviour with such a large negative fallout.