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(CNN)   No, this isn't another tech bubble; conventional rules of valuation just don't apply to internet companies   (cnn.com) divider line 47
    More: Ironic, dot-com bubble, WhatsApp, market research company, free cash flow  
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1925 clicks; posted to Business » on 22 Feb 2014 at 8:38 PM (34 weeks ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



47 Comments   (+0 »)
   
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2014-02-22 07:28:54 PM  
it isn't a new tech bubble because it's a relatively limited group of investors who are throwing their money down a hole.
 
2014-02-22 07:30:24 PM  
And that's the thing that makes WhatsApp such an attractive prize for Facebook: 450 million active users.

All of whom will flee to something else the moment the first ad shows up.
 
2014-02-22 07:46:35 PM  
Look, there *might* be a bubble in the Valley, but it's coming from 2 sources.

1) Acqui-hires.

Get a team, push out a product, run out of money, and parade your working functional team around the valley.  Software engineers are painful to find so they can sell off the company team for a few million, and a nice signing bonus for everybody.

Sure, you won't get *rich* off of acqui-hires, but you won't go broke either, which means that a lot of people try their failed startup because the downside is basically 0.

2) Customer sales.

I develop a company, get 40 million users but very little revenue, and then parade naked around the Valley selling my 40 million userbase to whomever figuring that Facebook/Google/etc knows how to monetize them.

Somewhat harder than Door #1 (you have to GET 40 Million users), but quite a bit easier than Door #3, which is figuring out how to monetize the suckers myself.

Watsapp had 450 Million users.  The largest mobile customer base in the whole world.  Facebook paid $19 Billion for the largest mobile customer base in the whole world.  And most of THAT was stock, so if Facebook's stock craters when everyone goes WTF, it's no longer $19 Billion.

/There's also the whole "Value companies on revenue vs. profit" thing, but meh.
 
2014-02-22 08:26:25 PM  
It sounds to me like they just bought the AOL of the 2010's.

19 gigabucks for free IM.

In 2014.

Somebody pinch me.
 
2014-02-22 08:32:15 PM  

Marcus Aurelius: It sounds to me like they just bought the AOL of the 2010's.

19 gigabucks for free IM.

In 2014.

Somebody pinch me.


1) See #2 from my boobies.
2) It's free instant messaging that works on flip phones.  Which means that there's a bunch of international customers in the developing world who are now using WatsApp and aren't using any of the traditional web apps.  So Facebook just bought the third world.   And while you're probably NOT going to get a guy in Rwanda making $2K/year to pay 99c for your app, you're a lot MORE likely to do that then get him to buy a $20K car.
 
2014-02-22 08:54:12 PM  
Totally not worrh it.
 
2014-02-22 08:55:46 PM  

meyerkev: Marcus Aurelius: It sounds to me like they just bought the AOL of the 2010's.

19 gigabucks for free IM.

In 2014.

Somebody pinch me.

1) See #2 from my boobies.
2) It's free instant messaging that works on flip phones.  Which means that there's a bunch of international customers in the developing world who are now using WatsApp and aren't using any of the traditional web apps.  So Facebook just bought the third world.   And while you're probably NOT going to get a guy in Rwanda making $2K/year to pay 99c for your app, you're a lot MORE likely to do that then get him to buy a $20K car.


I always saw the Facebook IPO like a scarf in the wind, waiting to get snagged on a branch or sucked into a river.  They're still flitting about.  But eventually everything comes down to earth.
 
2014-02-22 09:14:10 PM  
Just about the surest, most absolutely infallible sign that you're not only in a bubble, but close to the top of the bubble, is when people start explaining how this bubble is not a bubble because the rules have permanently changed and the economy has moved to a whole new level and conventional rules for valuation no longer apply.
 
2014-02-22 09:38:01 PM  

Asa Phelps: it isn't a new tech bubble because it's a relatively limited group of investors who are throwing their money down a hole.


Sadly, no. When the market (e.g.) bids up FB for dropping $19 billion on a handful of magic beans, or Tesla just because no cars burst into flames that particular week, or Twitter because...um, Twitter (*shrugs*)...the rest of the sector (and stocks more generally) tend to get taken along for the ride. "Rising tide...", and all that.

And the correlations are even stronger on the downside, when reality eventually (and inevitably) catches up to the ludicrous valuations being put on the market leaders. That's how bubbles work.
 
2014-02-22 09:40:54 PM  
The 90s called, it wants its bullshiat back.
 
2014-02-22 09:44:04 PM  
Fark is worth one trillion dollars.
 
2014-02-22 09:54:58 PM  
No, really, this time is different.
 
2014-02-22 10:03:37 PM  

meyerkev: See #2 from my boobies


giggity
 
2014-02-22 10:16:15 PM  
hahahahaha
 
2014-02-22 10:36:17 PM  

Bumblefark: Asa Phelps: it isn't a new tech bubble because it's a relatively limited group of investors who are throwing their money down a hole.

Sadly, no. When the market (e.g.) bids up FB for dropping $19 billion on a handful of magic beans, or Tesla just because no cars burst into flames that particular week, or Twitter because...um, Twitter (*shrugs*)...the rest of the sector (and stocks more generally) tend to get taken along for the ride. "Rising tide...", and all that.

And the correlations are even stronger on the downside, when reality eventually (and inevitably) catches up to the ludicrous valuations being put on the market leaders. That's how bubbles work.


ok, point me to a list of high-dollar venture capital investments in unproven products and/or services like we were seeing in the 90's.
 
2014-02-22 11:12:30 PM  

Asa Phelps: it isn't a new tech bubble because it's a relatively limited group of investors who are throwing their money down a hole.


Yeah, a limited number called "your pension fund"
 
2014-02-22 11:16:16 PM  

Asa Phelps: Bumblefark: Asa Phelps: it isn't a new tech bubble because it's a relatively limited group of investors who are throwing their money down a hole.

Sadly, no. When the market (e.g.) bids up FB for dropping $19 billion on a handful of magic beans, or Tesla just because no cars burst into flames that particular week, or Twitter because...um, Twitter (*shrugs*)...the rest of the sector (and stocks more generally) tend to get taken along for the ride. "Rising tide...", and all that.

And the correlations are even stronger on the downside, when reality eventually (and inevitably) catches up to the ludicrous valuations being put on the market leaders. That's how bubbles work.

ok, point me to a list of high-dollar venture capital investments in unproven products and/or services like we were seeing in the 90's.


Not sure how that's relevant to the point I was making. There's a lot of different ways to blow a bubble. My point was simply that dismissing this as "a relatively limited group of investors throwing money down a hole" isn't very plausible in the face of what is known about market correlations.

But, if you want to talk 1-to-1 parallels, then actually, yes -- venture capital has been flowing back into dot-coms and the like quite robustly for a few years now. Are the tech investors placing their money more prudently this time around? Well, that's the fun thing...you don't really know until after/if the bubble bursts.

/me...I'm not terribly optimistic
 
2014-02-22 11:22:38 PM  
Well, it's not really a Tech Bubble like in the 1990s. Most of those companies had no revenue, no product, and no future and Wall Street was pushing their stocks to retarded levels.

Today, there are companies with mountains of cash buying things they find complimentary to their products or competitive to them.

The bigger problem is long-term... what happens when Facebook is no longer cool and runs out of innovative ideas? Does it become Yahoo?

But don't be fooled, it is kind of hard to get VC money these days if your idea isn't very good. As an example, I saw this new iSCSI SAN start-up a few weeks back. Their idea is to have an iSCSI SAN that uses SSDs. Not a bad idea, but any iSCSI SAN vendor out there can make a SAN shelf and ruin their market. On the other hand, Pure Storage did something similar, but with FC storage. The difference was, Pure actually makes really good software on the back-end that sets them apart from every other storage vendor.

So, back to that SSD-based iSCSI start-up.... they don't actually have any software. Their entire SAN is a Super-Micro server with RHEL that serves up iSCSI LUNs. No interface, no "software". Just RHEL and on a server with a bunch of SSDs. This is a company that will die and no one will give them any VC money.
 
2014-02-22 11:41:42 PM  
Facebook won't die, it'll just be a massive ghost town with abandoned accounts everywhere. A few major players will survive and consolidate all the little guys up (the ones that don't go tits up).

I'm still convinced somewhere between 2015 and 2018 is when the correction is happening.
 
2014-02-22 11:47:13 PM  
"revenue is often something that will come later as the result of hyper growth, and traditional valuation techniques don't apply. "

Maybe, but when you need to sign up over half the world's population in order for the current revenue method to have a break-even point sometime before the heat death of the universe then maybe the valuation is a bit overblown.

Even if the users tolerate ads and/or higher subscriptions I have a hard time seeing how this is a sound investment - it relies on not only users sticking with the service after crapification by the new owners but also on billions of people piling on in, while simultaneously hoping no other service pops up that users start to flock to, and that telecommunications companies around the world won't react to several billion people using their services without them getting as much of a cut as they would like.
 
2014-02-22 11:49:05 PM  

Cubansaltyballs: Most of those companies had no revenue, no product, and no future


How does that  not describe "WhatsApp"?

The current bubble works like this: make a piece of software that has a minor network effect (users draw in other users). Market the hell out of it until you hit a certain, difficult to define critical mass of users, then sell the software to somebody else. People are making millions of dollars out of businesses that never turn a profit- if that's not a sign of a screwed up market, I don't know what is.

See: Instagram, DrawSomething, etc.
 
2014-02-22 11:56:55 PM  

czetie: Just about the surest, most absolutely infallible sign that you're not only in a bubble, but close to the top of the bubble, is when people start explaining how this bubble is not a bubble because the rules have permanently changed and the economy has moved to a whole new level and conventional rules for valuation no longer apply.


1.bp.blogspot.com
 
2014-02-23 12:02:54 AM  

Asa Phelps: Bumblefark: Asa Phelps: it isn't a new tech bubble because it's a relatively limited group of investors who are throwing their money down a hole.

Sadly, no. When the market (e.g.) bids up FB for dropping $19 billion on a handful of magic beans, or Tesla just because no cars burst into flames that particular week, or Twitter because...um, Twitter (*shrugs*)...the rest of the sector (and stocks more generally) tend to get taken along for the ride. "Rising tide...", and all that.

And the correlations are even stronger on the downside, when reality eventually (and inevitably) catches up to the ludicrous valuations being put on the market leaders. That's how bubbles work.

ok, point me to a list of high-dollar venture capital investments in unproven products and/or services like we were seeing in the 90's.


cdn.theatlanticcities.com
 
2014-02-23 12:04:27 AM  

t3knomanser: Cubansaltyballs: Most of those companies had no revenue, no product, and no future

How does that  not describe "WhatsApp"?

The current bubble works like this: make a piece of software that has a minor network effect (users draw in other users). Market the hell out of it until you hit a certain, difficult to define critical mass of users, then sell the software to somebody else. People are making millions of dollars out of businesses that never turn a profit- if that's not a sign of a screwed up market, I don't know what is.

See: Instagram, DrawSomething, etc.


I think the companies you mentioned were valuable because they posed a threat, rather than having such a ground-breaking product. For example, What's App cost the telcos billions of dollars and would be a threat to facebook if they could convert their users to a social networking version of the product.

So it's not always about buying the best invention... sometimes it's defensive. Spend X dollars buying this company so we don't have to spend 3X dollars fighting them in the future .

I'm not saying you're wrong, because everything you said was completely right... but it's not bankers and people buying vapor-ware, it's companies "acquiring" new users and keeping the competition at bay.
 
2014-02-23 12:21:45 AM  

Snarcoleptic_Hoosier: Facebook won't die, it'll just be a massive ghost town with abandoned accounts everywhere. A few major players will survive and consolidate all the little guys up (the ones that don't go tits up).

I'm still convinced somewhere between 2015 and 2018 is when the correction is happening.


I'm curious about that reckoning as well, when it happens this will be quite a bit different then myspace or any of the others in that its full of real data that's quite valuable to other companies.  I imagine they'll be able to make a tidy profit by selling subsets of this info to anyone who wants to pay.  I'm not talking anonymous marketing data, like genuine whole sale user account dumps.
 
2014-02-23 03:30:20 AM  
I wouldn't be worried about a tech bubble bursting if I didn't see so many articles about how this isn't a tech bubble.
 
2014-02-23 04:52:31 AM  

BumpInTheNight: Snarcoleptic_Hoosier: Facebook won't die, it'll just be a massive ghost town with abandoned accounts everywhere. A few major players will survive and consolidate all the little guys up (the ones that don't go tits up).

I'm still convinced somewhere between 2015 and 2018 is when the correction is happening.

I'm curious about that reckoning as well, when it happens this will be quite a bit different then myspace or any of the others in that its full of real data that's quite valuable to other companies.  I imagine they'll be able to make a tidy profit by selling subsets of this info to anyone who wants to pay.  I'm not talking anonymous marketing data, like genuine whole sale user account dumps.


is there a company that has tech to image-search for nude selfies?
 
2014-02-23 06:34:00 AM  

Leader O'Cola: BumpInTheNight: Snarcoleptic_Hoosier: Facebook won't die, it'll just be a massive ghost town with abandoned accounts everywhere. A few major players will survive and consolidate all the little guys up (the ones that don't go tits up).

I'm still convinced somewhere between 2015 and 2018 is when the correction is happening.

I'm curious about that reckoning as well, when it happens this will be quite a bit different then myspace or any of the others in that its full of real data that's quite valuable to other companies.  I imagine they'll be able to make a tidy profit by selling subsets of this info to anyone who wants to pay.  I'm not talking anonymous marketing data, like genuine whole sale user account dumps.

is there a company that has tech to image-search for nude selfies?


I'm sure the Aussie censorship filtering software could be tailored to focus on that without too much trouble.  Oh hey:
http://davidwalsh.name/nudejs

Looks like someone made us a handy little plugin already too.
 
2014-02-23 07:32:51 AM  

Arkanaut: I wouldn't be worried about a tech bubble bursting if I didn't see so many articles about how this isn't a tech bubble.


It's not a tech bubble...oops I mean it's not just a tech bubble. The next crash will be spectacular, and all encompassing.
 
2014-02-23 08:36:25 AM  
And housing prices will never go down!
 
2014-02-23 08:48:18 AM  

TedCruz'sCrazyDad: Asa Phelps: Bumblefark: Asa Phelps: it isn't a new tech bubble because it's a relatively limited group of investors who are throwing their money down a hole.

Sadly, no. When the market (e.g.) bids up FB for dropping $19 billion on a handful of magic beans, or Tesla just because no cars burst into flames that particular week, or Twitter because...um, Twitter (*shrugs*)...the rest of the sector (and stocks more generally) tend to get taken along for the ride. "Rising tide...", and all that.

And the correlations are even stronger on the downside, when reality eventually (and inevitably) catches up to the ludicrous valuations being put on the market leaders. That's how bubbles work.

ok, point me to a list of high-dollar venture capital investments in unproven products and/or services like we were seeing in the 90's.


Xkcdpopulationmap.jpg
 
2014-02-23 08:54:31 AM  

Lost Thought 00: And housing prices will never go down!


Right now with the health care industry hot, it makes me laugh when people say that it is recession-proof.

All it takes is one company's product to get shut down by the FDA, and it could very well go down the tubes.
 
2014-02-23 09:13:25 AM  
i still don't get the comments made several years ago by people saying the tech industry isn't experiencing another bubble like the late 90's - just because private investment is being used and not public stock doesn't mean that much
 
2014-02-23 09:26:35 AM  
In short, with this acquisition, Facebook is getting the most popular mobile social messaging app in the whole world.

Aaannnnnndddddd?

I'm pretty sure that with a relatively small amount of money I could create the world's largest pile of rhino poop. It's not going to make me rich, though.

If I had Facebook shares I'd be jumping the hell out of there, because all that's going to happen is that Facebook will keep acquiring these profitless companies, and more companies will appear trying to grab customer base as a result, and getting bought until they pretty much run out of shares.

I give it 5-10 years before the news media are like "shock at Facebook collapse. Why did people put so much money into such a worthless company".
 
2014-02-23 09:34:37 AM  

BalugaJoe: Fark is worth one trillion dollars.


babiesandbiscuits.com
 
2014-02-23 10:22:35 AM  

sirrerun: meyerkev: See #2 from my boobies

giggity


Rule 34?
 
2014-02-23 12:17:57 PM  

AdamK: i still don't get the comments made several years ago by people saying the tech industry isn't experiencing another bubble like the late 90's - just because private investment is being used and not public stock doesn't mean that much


Maybe it ends up being the means to officially obliterate all the imaginary wealth that was linked to the housing market whilst affecting the fewest number of people?

/not an economist
//shouldn't be trusted with money AT ALL.
 
2014-02-23 02:26:50 PM  

fusillade762: And that's the thing that makes WhatsApp such an attractive prize for Facebook: 450 million active users.

All of whom will flee to something else the moment the first ad shows up.


How do you even go about embedding adds in text messages? And it's so popular because it's free. Start charging for it and that user base evaporates. If those Facebook guys are really that smart, why aren't they designing the apps instead of overpaying for existing ones? For this to be successful, the article needs to be right as conventional wisdom suggests this is a bad move.
 
2014-02-23 02:43:44 PM  
meyerkev:

1) See #2 from my boobies.

Yeah, that's just gross.
 
2014-02-23 03:21:32 PM  
Opinion: MyAssHole is well worth $19 Billion

Editor's note: KierzanDax is chief analyst for PullingShiatOutMyAss Insights, a masturbation research company, and host of the IsThisPoop Podcast. Follow him on Twitter: @thenameiwantedwasalreadytakenandnowimstuckwiththisone

(NCC) -- One of this week's most astounding stories is Fark's acquisition of MyAssHole, a mobile picture sharing service that has more than 450 million monthly active users globally. The $19 billion that Fark will spend on buying MyAssHole created a collective jaw-drop in the tech world.

Sure, the price tag is getting a lot of buzz -- $19 billion is a historically big number for a venture funded company. But what exactly is Fark getting out of it?

Pictures of asshole. Lots of pictures of assholes.
 
2014-02-23 04:18:35 PM  
The ironic part is that I actually do buy pet food online via Amazon theses days, so the basic ideas we sound. There were just too many companies chasing after the same customers, and some of the broadband infrastructure wasn't there yet.
 
2014-02-23 05:24:18 PM  
1.bp.blogspot.com

IT'S NOT A BUBBLE!
 
2014-02-23 05:37:54 PM  
The economy is a bubble.
 
2014-02-23 07:53:49 PM  
www.multpl.com

  When the Shiller PE Ratio of the S&P 500 gets above 26, bad things generally happen.    You just have to look at the valuations of boom stocks like Netflix, Chipotle and Tesla to know that we're currently living in la-la land.
 
2014-02-23 09:24:36 PM  

Franco: The economy is a bubble.


Bubbles have become America's largest export. Excessive wealth doesn't trickle down. It just finds unproductive ways to evaporate.
 
2014-02-24 12:55:00 AM  

Branch Dravidian: IT'S NOT A BUBBLE!


That's what they are saying about Bitcoin.
 
2014-02-24 04:28:41 AM  

Swampmaster: Branch Dravidian: IT'S NOT A BUBBLE!

That's what they are saying about Bitcoin.


DogeCoin is the most popular BC after BC. Wow. Such invest. Very returns.
 
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