"More broadly, Internet start-ups are drawing investment based on their ability to build an audience, not bring in revenue - the very alchemy that many say led to the inflating and undoing of the dot-com bubble."
The above quote comes from an article in yesterday´s International Herald Tribune (which is quickly becoming my favorite newspaper).
This is in light of rumors concerning the true value of Facebook (perhaps $15 billion?) and the fact that many potential buyers are currently circling the social networking site.
That amount of money may or may not be justified (please refer to an earlier blog post) but the simple fact is that this "inflated" value is rooted in current audience and according potential.
Another issue comes to light as a result of such value perceptions: that competition between the big buyers out there could drive up these prices as well. The assumption is that a price war is founded on financial stability.
Take the following as an example. Rupert Murdoch looks like he made a steal when he bought MySpace for under $600 million, considering Facebook's current perceived value. It is true that Facebook has since opened up its platform and is now the only true competitor to MySpace, but the competition interested in aquiring Facebook is the primary reason the price has risen so much. MySpace and Facebook should both be valued similarly.
The genius of Murdoch is that he has directly increased the value of MySpace by allowing the buzz with Facebook to do it for him. And now, he can open up the MySpace platform and take it further.
Speculation (based on audience) and competition seem to be intrinsic parts of this price dynamic. Revenue is left out. It is still supply and demand, but in a more meta-physical dimension.
Facebook doesn not make enough money to justify anything close to $15 billion. Neither does MySpace. Many internet and web 2.0 companies have yet to even turn a profit. "Twitter is not focused on making money and no one in the company is even working on how to do so, said its co-founder and creative director, Biz Stone" (from yesterday´s IHT article).
The concern is that this perception is completely unfounded, and it was the issue when the bubble burst the first time. Business practices in the current age again are ignoring what has traditionally counted the most, revenue. Wall Street is content for the moment (and that might be deserved).
Depending on who you ask, either the bubble is again becoming heavier, or this is just simply the New Model in the Information Age. Personally, I am of the opinion that few things in the world are worth $15 billion, and it leaves a lot of room for justification.