Category Archives: bubble

bubble, vc, venture capitalist, web 2.0

Web 2.0: Drunken Mayhem or Sobriety Test?

Anne Zelenka posted some interesting thoughts on GigaOM about the current web 2.0 environment in her Web 2.0 Manages to Sober Up post yesterday. While Steve Rubel predicts doom and gloom ala the 2000 dot-com bust, I think Anne does a great job of providing a more balanced perspective on the current environment.

I think that there are two main differences this time around.

  • First, we are dealing mostly with VC investments in this round instead of public money going into insane IPOs. This means that the impact on the economy will be more limited if the bubble bursts.
  • Second, most companies taking investment money have actual products. The days of funding technology ideas with no tangible output seem to be mostly (but not entirely) behind us.

In the pre-2000 days, you couldn’t build anything as quickly or inexpensively as you can now. Ajax applications come together quickly and hosting is really affordable. People are building things quickly with little money to see what works. A bunch of ideas will fail before you see the next Flickr or Digg emerge. The funding tends to go into those that have shown some success already.

While my general outlook on the industry is still positive, I don’t think that the future is all roses and kittens. Some companies are probably paying way too much while trying to catch the next big thing. Will Microsoft really get $240M worth of benefit from Facebook? Maybe, but I’m a bit skeptical.

Other Fast Wonder posts you may want to read:

bubble, vc, venture capitalist, web 2.0, young people

Guy Kawasaki’s VC Aptitude Test

Even if you are not drawn to the allure of the venture capital industry, Guy Kawasaki’s aptitude test is worth reading for the amusement value. A few gems from the test:

  • Been kicked in the groin by a major, long-lasting economic downturn, so that you know how powerless you are. (add 1 point)

  • Worked at a failed startup, so that you understand three things: first, how hard it is to achieve success; second, that the world doesn’t owe you a thing; and third, what it’s like to be fired or laid off. (add 3 points)

  • What is your background? Management consulting (subtract 5 points)

bubble, MySpace, valuation

Is MySpace worth $10 – 20 BILLION?


Doubtful.

According to RBC Capital analyst Jordan Rohan, it might be possible. “Rohan said MySpace could demonstrate a value of between $US10 billion and $US20 billion within a few years. Acknowledging he was making an ‘audacious claim’ he justified the forecast on the basis of MySpace’s ‘raw, unprecedented user/usage growth.’” (Quote from Sydney Morning Herald).

This is bubble talk. Paul Kedroski thinks that “putting up oversized estimates of a company’s value is mostly a marketing move for a financial analyst, not an exercise in company valuation. The number doesn’t matter; it is simply a piece of red meat to attact the media pack.” (Quote from Infectious Greed).

Occassionally analysts get caught up in the excitement of the next new thing to make wild predictions about technology (aka the hockey stick projection). We saw way too many of these predictions during the dot-com bubble. Looking back at projections made in 1999 and early 2000, how many predicted that [insert name now defunct company here] was in a position to take over the world in just a few short years?

In reality, technologies rarely, if ever, continue meteoric rises, and MySpace is no different. Yes, MySpace has had tremendous growth. Yes, they are one of the most frequently visited sites on the Internet. However, two things are likely to prevent MySpace from hockey stick growth:

  • First, young people are fickle when it comes to trends. MySpace is the hottest social networking site right now, but it may not be as hot in a few years. The younger participants may find another site more interesting as they become old enough to participate, or another company may target the below 14 crowd and keep them as they grow older.

  • Second, growth will stabilize as the market gets saturated. A new group of 14 year-olds become old enough to use the site every year; however, at the same time, others will drop off as they outgrow it or move on to other interests.

I am not saying that MySpace will crash and burn anytime in the near future. I suspect that it will continue growing at a *reasonable* rate (just not at an exponential rate).