Here we go again
SOURCES IN THE VALLEY tell me that the VC funding is flowing like water again and that anyone with a half decent idea and the words Web 2.0 in his business model is getting all of the funding he needs to make a good go of it.
But it's not just the VC that's flowing in abundance: companies that are already in the Web 2.0 paradigm (such as Google, Facebook, Yahoo! … the list goes on) are looking to stay ahead and doing so by acquisition.
The fact that acquisitions are happening is not all that strange – after all, that's how established companies stay ahead, right? Acquisitions have been just another way for companies to innovate in the Valley.
However, what's weird is how the values of those deals are skyrocketing. A quick look back over the past couple of years' worth of Web 2.0 buyouts revealed just how dramatically those figures are rising.
Back in 2003, Rupert Murdoch bought MySpace for US$580m and the market went mad, thinking that it was an insane amount of cash to pay for a social networking site that had seemingly no revenue streams.
Then two years later Google bought YouTube for $1,6bn and the market went even more ballistic.
The next piece of hot property was Facebook – and the rumours began circulating that it would be the next company to go. However, it seems Facebook has strong ambitions and recently rejected an offer of $1bn, looking for a figure closer to the $2bn mark.
Oh, and just to drive the point home, Facebook carried out its own acquisition – of a company called Parakey, which will apparently drive the company a little bit closer towards becoming the de facto web operating system (look on wikipedia.com if you need a bit more detail on this).
Is it just me or does this phenomenon remind us all of a similar trend that happened a couple of years ago, ultimately culminating in the dot.com boom, bust or bang (or whatever you prefer to call it)?
It's all about the build-up. New age companies buying each other for seemingly massive amounts and, at the outset, unsure of the value those organisations actually have to offer. In the Web 2.0 age it's about subscribers, eyeballs on screens and the number of mouse clicks and not about actual earnings.
In the dot.com era it was all about share prices and market caps – and, importantly, not so much about earnings multiples. Amazon, as a prime example, took a good while to turn a profit. And that was despite it being one of the heroes of the dot.com era, with a share price many of its peers would have killed for.
There are huge similarities between what happened in the dot.com era and what's happening today.
The only difference this time around is that more of the activity seems to be centred on private companies. So the good news is: the public will be a little more protected – whether or not the fallout will be as dramatic as it was a couple of years ago, remains to be seen. We can only hope that, by now, investors will have learnt their lesson. My opinion is that we're at the beginning stages of the next bust.
The bubble is building and, just like the dot.com bubble burst, so sooner or later the Web 2.0 one must burst too.
Then again, what would I know about such things anyway?
Finweek
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