I’ve been around for awhile. I remember places and used services like AOL, CompuServe, @Home and more. Many, many, many more. I was around for the Dot-Com Bubble and watched as millions were given to places like DEN (Digital Entertainment Network) which imploded in a spending-gasm and then got caught for tertiary illegal activity. Like the bygone age of dotcoms, this bubble that people are talking about is much more consolidated and the values have grown over the 10+ years by an equal amount. About 10 times the amount of money is being raised by IPO bound companies as would have been given in the original dot-com bubble. This brings me to the other elements from the title, but not the main point. I’m burying the lede, in journalism parlance.
For instance, FACEBOOK is valued in the billions but is no different than AOL would have been if AOL would have grown into an Internet company instead of a service that was self-contained. I’ve said this in the past, but wanted to remind people that the difference between AOL and FACEBOOK fall onto the backbone of the Internet. Without the open transfer of information, Facebook would be doomed to the same fate as AOL. AOL had everything that Facebook has, but was a walled garden (arguably a garden). Nonetheless, Facebook.com exists as an element of the Internet and it is quickly oozing into websites with “Like” buttons, just as much as Google is now hoping that they ooze into websites with “+1″ buttons (without the walled garden of AOL or Facebook).
So, we have this inflated value, and venture capitalists love being on the first wave leading up to an IPO because their valuation is capitalized once they can exit after an IPO [or whatever timeframe they designated]. But, an IPO bound company can pay the initial investors with the IPO garnered money. The IPO days of the last Dotcom era led to a reanalysis of just what was being provided. Many companies simply had nothing. They offered nothing. They filled no need.
MobShop.com was a company that was part of this original Dotcom era. It was a group shopping site that consisted of a bunch of people purchasing an item and as the item was purchased, the price dropped. It was a fun site to buy stuff from. But the “reserve price” of this price drop was not known except for a small snippet that showed that with more buyers the price would drop “x” dollars. With Groupon.com, the Reserve Price is known, but in the form of “X” number of sales are required for the offer to be fulfilled. Sort of like KickStarter.com.
An article by LAURIE J. FLYNN in the New York Times from the era contains the quote:
”Consumers just never warmed to the aggregated buy concept,” said Robert Parker, an analyst at AMR Research in Boston. ”What was missing was a better sense of affiliation, like group buying for Harley riders or something like that.”
Now social networks are creating that affiliation that Parker speaks of, but Groupon.com doesn’t do that. The IPO for Groupon.com was cancelled, but, like my theory, the value was around $100 million. The IPO for Groupon.com is estimated currently at $750 Million. I wouldn’t be surprised if it would have landed around $1 Billion if reviews of the books would have been slightly more beneficial to the IPO. But the general public got to review the books through the IPO filing and noticed that Groupon.com was riding the same effect that MobShop.com was riding… irrational exuberance. People who are investors, and capable of spending money on an IPO investment and then get out, will hype the offering. Marc Andreessen was an investor in MobShop as well. Of course Andreessen is saying there is no bubble. Why would he? He wouldn’t be investing in tech companies if he believed it to be a bubble.
Couple this with the massive amount of money circulating in the economy, what I think is a double-dip, and irrational exuberance and you’ve got another bubble. But one that won’t impact anything short of resetting the clock for another 10 years of Internet growth for smaller businesses, hopes and efforts from entrepreneurs. These entrepreneurs will now think that billions are the new hundred-millions and those of us without either will wonder how the hell we’ll get to that level.
Too Long; Didn’t Read?
Facebook = AOL; Both Overpriced. Groupon.com = MobShop.com (circa 2001); Both Provided Minimal Benefit. Massive Amount of Currency Circulating in Big Business = Huge Valuations; People lost the concept of a dollars value. Stock Market + Irrational Exuberance = Bubble.