Bubble or not bubble?
That is the question…
[youtube=http://youtube.com/watch?v=pr7lDlUfw9w]
Video not available anymore, find it here.
What do you guys think?
via LittleGirl
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To the first person who is about to comment this post: the fact that we ask ourselves the question of a bubble or not reveals some kind of maturity that leads me to think that there’s isn’t such a bubble after all. Just a bullish market, valuation-wise. To me, the value of a company = the sum of its future cash flows discounted by the cost of their capital (roughly their cost of equity, between 20% and 200%, since web startups have no debts).
I’ve thought about that reality check maturity too, but is that enough? Anyway, there’s certainly something wrong going on in the US economy ( http://krugman.blogs.nytimes.com/2007/12/11/its-getting-darker/ ). You wrote about the real-estate market crunch earlier, it’s bound to have an effect to IT VCs.
A better question is that is Europe and Asia safe this time?
@Kari : there is nothing wrong with the US Economy. It’s simply the way it goes since 200+ years. Create a new market hence value somewhere, then make money out of it, then let the money circulate, then once the fresh flesh is gone, let this business go by itself and create a new market somewhere else. Pretty crisp & clear.
Fact is : Europe (and France especially) is not based on the same model, which explains the slow recoveries here – exception to the rule : Germany, who has much stronger basement than the rest of Europe.
A lot of people seems to think there is a bubble because 1)many services base their business model on advertising or 2)because some Web2.0 companies have high valuations. I think that none of these facts justify a bubble: I don’t think that the advertising market is large enough to support all these companies and that we are in a market where the winner takes it all. It explains both the large number of companies trying to get a piece of the pie (among which a lot will fail, as it has always been the case in any market) and the large valuations of companies which are the “winners”. I also think that there won’t be a major “crash” when the advertising market will potentially “saturate” because on the contrary we see a lot of business models starting to be based on a happy medium between fees and advertising, leading potentially to completely customizable strategies making the user pay in function of the quantity of advertising he is ready to support.
What I like about all these answers is that they address a different field—finance, the general economy, revenue-models—to give an answer to the question.
I’m with Jeremy, in that recognising the problem is the first sign to a cure, with Marc, in that these things are cyclical and some aspects are very specific to the US, and Fidji, in that advertising is not the answer to all things (though it sometimes feels like it).
I haven’t seen much discussion about how much did the Beacon-disaster cost Facebook? (ie. how many hundreds of millions of that hypothetical 15 billion?) I’m also quite sure that Facebook will hit some problems regarding European privacy laws if it tries similar stuff in the future. I don’t know, some aspects of facebook might even now be against privacy laws outside US. Are these risk reflected in that price?
(I’m assuming the main business model of facebook is wholesale pimping of their users’ demographic information.)
@Kari: I don’t see the connection between Facebook (one company) and bubble-nomics? That said, I haven’t actually heard any official source confirm that Facebook was valued at $ 15B. Rather, everybody (bloggers and analysts?) made an estimation based on a sum MSFT paid for advertising-rights (+ a small share of FB).
And I don’t have an answer to the Beacon-issue either. In my experience, there’s a big difference what early adopters / tech-savy users (bloggers and analysts?) complain about vs. what the majority of users (who don’t belong to that group) care about.