Slashdot Mirror
Has the Second Dotcom Bubble Started?
An article at the Guardian asks whether the exceedingly high valuations of social tech companies signify the arrival of a second dotcom bubble. Quoting:
"Every week, one of the new generation of internet firms seems to attract a sky-high valuation. Zynga, the social-network games company that has tempted millions to grow virtual vegetables in its FarmVille game, has been valued at $9bn (£5.54bn). Profitless Twitter is said to be worth $10bn. Groupon, vendor of online discounts, rejected a $6bn offer from Google and is considering a flotation with a potential valuation of $15bn. Tech-watchers say this is just the start: the real boom will come when Facebook, the head boy of the new dotcom frenzy, goes public, probably next year. ... The last dotcom boom really took off after the flotation of the internet software company Netscape in 1995. Patrick says this time it's likely to be Facebook that lights the fuse. So far, private investors have been locked out of the New Thing. But JP Morgan is setting up a fund, and Goldman Sachs recently tried to get its clients' money into Facebook."
The problems that monetizing free services like Facebook are largely as follows.
-The value of the product to users is determined by the number of your friends that use it. It's value to consumers massively diminishes if large swathes of your friends dont use it. Its the same reason I don't use MSN messenger anymore. That's actually a really great product, but I don't know anyone else who uses it, and that pushes its value to 0. What this effectively means is that Facebook cannot charge users for content. As soon as they do that, some people will leave, which pushes down the value for money that users who want to stay get. So they leave too. No future there.
-So if they can't charge, how do they generate income? As we know, its largely advertising revenue. That's true of Google, and Facebook, and any aspiring free products out there. The success of that model is difficult to predict. On the one hand, the amount of information about users that these companies can get is astronomical. It is certainly of use to advertisers, and they are probably willing to pay huge sums so that they can integrate that data into their systems for personalized adverts. On the other hand, I've yet to see personalized advertising systems which is accurate enough to be of value. I've never clicked any Google or Facebook ads because they have never hit anything that I would want. Until that gets addressed, there's not a huge future in that either.
Is it just my observation, or is eldavojohn an idiot?
During last dotcom boom companies had no usable plan to get income. However, Facebook is advertisers dream with its extremely targeted advertising system, Zynga has a huge amount of casual players and both advertising and direct payment system and groupon receives good money from the stores. They all have business plan. They might have to work on them a little bit as they're still so new companies, but they definitely have one that work.
That's why it's not a second dotcom bubble - it's just that the masses have started using internet a lot more than before and web itself has changed.
The problem with them is that they've become excessively efficient at doing so. Casinos, the other high-profile fool devaluation institutions, at least operate on the comparatively honest principle that you have to go inside and put your money on the table in order to lose it...
Please define valuable.
You realise that they are knocking houses down because the supply of them is such that they are worth less than the loans which were taken out to build them.
Let me say that again, to emphasise the insanity. They are knocking houses down.
Despite all the poverty and homelessness, despite the trailer parks. Because for capitalism to function, supply must never meet demand. It is only by destroying perfectly good housing that the supply can be reduced, the remaining stock can be made more valuable and people can go back to their wage slavery in order to pay the mortgage.
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Groupon seems to me like one of those ideas we'll look back in retrospect and think, "Why was it worth that much? It was so obvious!"
The idea of landing a big number of first-time customers sounds great until the customers start coming in. From the experiences of business owners I know, Grouponers were, simply put, cheap (not condemning cheap people here, as the times demand it for many.) If the groupon is "get $50 for $25," you better damn be sure most customers will spend the $50 and not a penny more. And if it's a restaurant, they'll tip on the $25.
I expect that those customers will not be back; they will move on to the next goupon.They're not looking for a new place to eat; they're looking for a deal.
And for consumers, the deals are already being watered down by the typical (one month free at the gym, or free karate classes for a week) that you see everywhere.
As for the businesses themselves,I wonder how many more of these kind of situations we'll see - a restaurant using a Groupon-like company hoping to land quick cash in desperation.
Also, from my conversations with people who own businesses, Groupon's sales approach is very aggressive. They put dollar signs in the business owner's eyes. But eventually, they'll get found out. Right now, people don't want to miss out on this since all the cool kids are doing it.
Of course there are businesses who've had great results with Groupon. I just think it's lunacy to think they're worth $15B.
Facebook 09 estimated revenue is indeed $800 million...yet Goldman Sach's offer could place the total value near $50bn. That's laughable compared to Groupon, who saw profits around $350 million, yet were only offered $6bn. If Facebook really is worth $50bn (it's not) then Groupon was right to reject the offer. Hell, that $800 million is only revenue. I'm sure it's probably not by very much, but their income is going to be less.
The smart investor won't dump money into a company so overpriced as Facebook when you look at the money they can get. Besides, how long will it be until Facebook is unseated? 5, 10, 15 years?