Much has been made recently over the valuations of websites such as Facebook and Groupon ($50bn and $15bn respectively). The main question being whether these high valuations mean the advent of a new dot-com bubble.
My view is that we will have one, not as pronounced as the one just over 10 years ago but one nonetheless. My reasons are simple
- Lack of clarity over the business plan. Apart from Groupon, none of the big sites really has a convincing business plan for long term strategy. The reason being that neither Facebook not Twitter were ever developed with monetisation in mind. Making money from the site was an after-thought once they’d caught on. Twitter has realised this is an issue and changed CEO but the issue remains. Facebook is a means of finding and keeping in touch with friends, Twitter is a microblogging service. Neither of these was developed with the intention of serving ads to people. Google’s IPO worked because they were monetising something based on what people were after.
- The sites are over-valued. Anyone investing knows that they will not make much money from this activity so why invest? Plus, how much is Facebook and Twitter worth to people? My contention is $0 – you’re not going to pay for something which used to be free and I don’t really care if I lose touch with ‘friends’ who I’ve never contacted using Facebook. Those that I want to keep in touch with I will find ways to keep in touch with.
- The web is cyclical… only 4/5 years ago people were saying how MySpace was going to revolutionise the web. Right now it is about to layoff a whole load of people. Web2.0 was about collaboration but collaboration came at a price… Free… meaning the horse is already bolted in the race to make money out of this.
- What about the infrastructure? How will that impact (a) how current services are delivered, and (b) what new services arise?
That’s enough gloom for now, time for a song