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> "we were told there was money :(" People invest in services like Twitter knowing that there is a chance that they might not be monetizable, but believing tha
by geoffschmidt 14y ago
> "we were told there was money :("
People invest in services like Twitter knowing that there is a chance that they might not be monetizable, but believing that if they turn out to be, then the payoff will be enormous. So the expectation value of the return is still high.
Let's say I give you a box and tell you that inside is a social media company. You know that the achievable revenue per user could be anywhere from, what, a penny a month to a dollar a month -- two orders of magnitude of variability. You know that the achievable audience could be anywhere from, say, 10 thousand users to 1 billion users -- five orders of magnitude.
So if you want to determine how much you would pay for the contents of the box, you should try to learn about the potential audience rather than the potential revenue per user, because the former completely dominates the latter in the expected value computation.
Put another way -- how much would you pay to flip a coin where heads you get a billion dollars, and tails you get nothing? If you're allowed to purchase more than one coin flip, and the coin flips aren't too correlated, and you have access to efficient capital markets, probably close to half a billion dollars, am I right? :)
- dmorgan 14y ago>People invest in services like Twitter knowing that there is a chance that they might not be monetizable, but believing that if they turn out to be, then the payoff will be enormous. So the expectation value of the return is still high. Yes, this Casino capitalism, we don't like it much.
- stickfigure 14y agoYes, this Casino capitalism, we don't like it much. ...and by failing to recognize that all human activity worth doing carries risk, you have invented "bunker capitalism".
- saurik 14y agoThis is only true if you actually believe the expected payouts from these eyeball-based businesses could possibly be very high: many people do not, and the example companies we have to examine have not disproved this: unless you are actively in the position where people are trying to use your service to find things (Google), you apparently don't make money; maybe it is possible, but no one has figured out how to do it yet, and there was honestly not much reason to believe there would be beforehand. Now, maybe that analysis is wrong, and maybe there is tons of money to be made in these companies, or maybe they just need to be twice more as large as they are and it will work: that could totally be the case, and is then indicative of a set of morals and overall value mindset to chase that dream as opposed to another.