Because of what happened back in the late 90s - the internet bubble which nobody saw coming - there are always a line of pundits queuing up to say we are about to hit the next bubble. The latest raft of spectacular valuations, including Instagram which was bought for Facebook for $1 billion a couple of weeks ago, are making many people think that we could be in for another crash very soon.
The level of disruption at the moment is exactly the same as it was in the early days of the internet, but unlike a decade ago, there are some very serious businesses making an awful lot of money today. Having said that, the crazy valuations are breeding a whole new breed of companies and speculators who I think are getting involved in a mini bubble below the big guys. The prizes are so big that it is only natural for people to be trying to get in on the action. These are not all the companies involved in the industry, but I think they highlight the spilt level bubble I am talking about.
Although some of the valuations are spectacular at the moment, I firmly believe that history will go on to show that the following companies will deserve their lofty price tags in the tong run:
Facebook - The big daddy of the large valuations and is approaching a $100 billion IPO. Have the huge user base and revenues to back it up though providing they can keep it going for years to come.
Instagram - Perhaps the one that split opinion the most, but given their rise to 50 million users, massive sense of community and similar traits to Facebook, this will end up looking like the biggest steal of the century in a couple of years time.
Twitter - Their value has been floating around the $10 billion mark for the last six months and it is worth every penny. Slow to monetize but when they do, it will be huge. News, sports, TV and other businesses could not live without the service anymore.
Linkedin - Although far more niche and annoying at times, the amount of data that they have about business people is immense. Slow and steady and growing well since their IPO. Huge long term potential to generate cash.
Y Combinator - Not a social media company per se, but this accelerator does generate lots of social and mobile companies. Have the best talent in the world passing through, a great vetting process and people get instant funding just by getting accepted. Will continue to churn out hit after hit.
In The Mini Bubble Club
Foursquare - Been around for few years now and although they have 20 million users, it just doesn't seem to be taking off in the mainstream. Had the chance to sell big to the likes of Yahoo and although they say they are switching on revenue this summer, their current valuation is out of control. Not a long term player in my opinion.
Klout - I've always been down on them, but given the amount of buzz they have had, people seem to think they are worth a lot of money. Just a bullshit metric that gets marketers excited. Gone before long.
Groupon - Share price has halved since their IPO which is no great surprise because you really can't run a businesses where your customers more or less hate you for screwing them. A short term hit.
Pinterest - Although Lauren and others here on the blog have been positive about them and they have grown to be the third biggest social network, I just don't see it long term. Maybe it is because I am a guy and it is aimed at girls, but I just don't see the long term business or engagement here to keep it going.
Path - Founded by Dave Morin of Facebook fame and raising bucket loads of cash from many different places, this is trying to be a more private social network. May end up getting bought by somebody like Google, but that would be for the talent rather than any huge adoption or revenue.
Milk - The mobile incubator that was founded by Kevin Rose was bought for a reported $30 million after only six months, despite having only one app launched that was a flop.
Start Up Accelerators - These are popping up all over the world and being well funded to discover the next stars. The truth is most of them are just businesses themselves that will end up failing never mind generating the next big thing.
Where Will It End?There are a lot of people who are making a lot of money and who will continue to do so. The world is changing and social media and technology are leading that change. There are also a lot of people who are going to get stung like funds, VCs and a bunch of start ups, but they are all taking punts trying to make their fortune so let's not feel sorry for them. I think this short video with the Winklevoss twins sums it up best. They were so close to the biggest hit of them all with Facebook, but having completely missed the boat, they are now trying to cash in by becoming VCs. Laughable.
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