Less than three years after emerging from nowhere, the hot social networking website MySpace is on pace to be worth a whopping $15 billion in just three more years. Or is it? And is the much smaller Facebook really worth the $900 million or more Yahoo is reported to have offered for it? The problem, say Wharton experts, is a dearth of information — including data on expected revenue generation and cost structure — to plug into the standard valuation models.
Dot-Com Bubble: Why It’s So Hard to Value Social Networking Sites
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Eugenia Loli
Ex-programmer, ex-editor in chief at OSAlert.com, now a visual artist/filmmaker.
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Interesting, but what does this have to do with OSAlert?
Exactly what I was thinking.
Can anyone translate the article title into not-marketing-speech ?
Marketing people can’t cope with change, or unexpected models. This causes them to make mistakes and lots of people loose lots of money
A giant media combine run by a septuagenarian with a yen for Chinese dictators thinks it’s missed the internet bus and is desperate to buy its way in. So it splashes out on a site called MySpace and the next thing some investment bankers claim that MySpace is soon going to be worth $15 billion.
So far they haven’t managed to explain how buying headcount can be converted into producing revenue, but then no one said you have to believe them. No one went bust by failing to buy stocks in dotcom outfits hawked around by those same bankers and megacorps.
It’s all fashion. These are fashion-driven sites in a currently fashionable sector and their ratings reflect sentiment, not reality. Keep clear and watch as sooner rather than later the whole circus moves on. A few people will get rich. Most will get poorer. What else changes.
You can say what you want, but if you buy something for 458 million, then sell ‘ad-space’ for 3 years for 900 million, there’s insta-profit involved.
And that’s the difference between this bubble and the last one; there’s actually money being made this time around, however inflatedly optimistic people are about it.
It’s really odd how linked in Google is with this bubble. Google is flush with cash and it’s handing it over pretty liberally for advertising rights in these popular “bubble” sites like youtube and MySpace.
I guess Google is trying to corner the internet advertisting market. Simply by buying up page hits for google ads. It’s doubly odd that a News Corp company can’t generate it’s own advertising revenue tho. Or that other players haven’t been able to replicate the Google advertisting cash bonanza.
Online advertising could be the new bubble. It’s where the money is being magically generated from. Google is the undisputed king of providing it.
It’s just hard to say whether advertising customers are getting good returns on the advertising dollars spent. Without the advertising online services are worth a lot less.
All the optimistic analysis of these companies, rely on the online advertising market growing significantly.
There was actual money being made during the .com bubble. The problem was that investors spent lots of money and didn’t get a return.
This time, (the .Net bubble
people invest their money in advertising. There is now so much being spent on advertising that there will come a time when the investment/return figures get so bad that the bottom will fall out of the market and google either adapts or goes down the hole.
Maybe i’m a cynic.
Stephen
I have a hard time seeing how a network with a non loyal userbase allways looking for newest cool fad could ever be reasonably valued by projected revenue. Value it by what they make now and what they would have if there was a mass exodus away from there product tomorrow. I highly doubt that MySpace will be in 2 years from now.
I would tend to agree with you. Sites like MySpace are driven primarily by hype and buzz. After everyone migrates to them, they lose a certain amount of cachet and start to become a commodity. Kids will move to something cooler when it inevitably comes around.
Who’s to say that any of this will be worth anything in a few years? Is it guaranteed they will stay on top, or will the next big thing come around? The only value of networking sites is their advertising potential, beyond that they have no value. Their success is due to a trend, not a stable and certain market demand. Not only that, there is nothing non-reproducable or exclusive to their product.
Google is the essense of Tech Boom/Tech Crash 2.0. Parts of their business model are going well, but others don’t make any sense. The valuation of YouTube when they purchased it is a joke.
Computers are real commodities, so is steel, lumber and refrigerators. Internet access is a service, along with web-based enterprises that do not sell a physical product. For the life of me, I do not get how the stock market and investors place so much value on the intangible.