An article over at The Guardian has me seriously considering something I’ve always wondered about today’s swath of web 2.0 businesses – why are they valued so much and where are the profits coming from to justify these values?
The Guardian article puts forth that Anthropologist Sekai Farai was given a grant from Columbia University to study the effects of the burgening web 2.0 markets. The more he studied the changing valuations, the more he saw the emerging bubble forming.
In the article, Alan Patrick, co-founder of technology consultancy Broadsight, makes it pretty clear that the bubble has already begun:
"A bubble is defined by too much money chasing assets, greater production of those assets, then the need to find a greater fool to buy them."
With Facebook now valued at somewhere between $US50 and 60 billion dollars, and Group buying discount site Groupon offered $6 billion for the site by Google – it’s not hard to get caught up in the hype and the astronomical figures being thrown around.
Just as absurd is that Twitter is now worth $US10 billion – a pretty figure, until you consider that Twitter has no revenue streams to speak of. Even Farmville, the running joke among some Facebook users – is now valued at more than US$9 billion: big dollars for a social media game.
Farai says we should ultimately follow where the money is coming from:
"There's a sense that this isn't real money. In the long run, that can't be good."
Are these valuations out of control? Let us know below. [The Guardian]