8 ms·

When these bubbles really get crazy, you start questioning your sanity and wondering whether maybe you're just plain wrong. You actually start wondering if the

by bedhead 13y ago

When these bubbles really get crazy, you start questioning your sanity and wondering whether maybe you're just plain wrong. You actually start wondering if the valuations are justified after all, whether it be a house, stock certificate of a tech company, the mineral rights to some acres in the Haynesville shale, or some land on the Vegas Strip. My head hurts.

nilkn 13y ago
To be fair, WhatsApp has an incredible number of very active users. It's not like the companies in 1998/99 which had no revenue, no users, but spent millions on Super Bowl ads. That said, this is a staggering amount to pay. I'm not familiar with Facebook's financials, but I'm surprised they could even afford this. I'd chalk this up to Zuckerberg's paranoia about no longer being #1 and less to a bubble.
- adventured 13y ago
  WhatsApp has no serious revenue, the valuation is similar to the dotcom bubble in financial terms. Companies in 1998/99 weren't lacking in users. ICQ was purchased for $400 million in mid 1998, and had over 80 million users a year later (over 100 million by 2001). It too was run by a thin team, of just 70 people total (quite the accomplishment considering the technology of the time).
  - nilkn 13y ago
    Perhaps you're right. I was thinking more of companies like Pets.com and less of ICQ, though obviously ICQ is a much more direct analogue to WhatsApp today.
- teacup50 13y ago
  > It's not like the companies in 1998/99 which had no revenue, no users, but spent millions on Super Bowl ads. It's not? They had users back then, too.
  - nilkn 13y ago
    I do not know who "they" is referring to in this post.
- gutnor 13y ago
  You would hope that from one bubble to the other people learn something. The last bubble, people thought than making stuff available online was enough (Do X but on the internet). The first crisis taught us you need to have an actual business model and a way to acquire client. But then, Google happened. Big user base can be monetized. So we have a second bubble where acquisition of user is the main driver, with the assumption than like google they will find a way to milk their users. At some point that bubble will explode too.
  - tostitos1979 13y ago
    Big user base monetization = ads. Are mobile ad cpi's really that high?
    - kunaalarya 13y ago
      Yes. $2-3 for games for quality users, and going up significantly once there's a mobile payments solution that works.
- BogdanCalin 13y ago
  Of course they can afford this. Facebook has currently a market cap of $173.35B (https://www.google.com/finance?q=FB https://www.google.com/finance?q=FB) They spent on WhatsApp $4B (cash) and $(12+3)B (in stock). $12B is nothing when you have $173B. If the $173B evaluation is correct, it's a totally different story. But as long as people think it's correct, Facebook can profit and buy any competitor with investor's money.
blantonl 13y ago
There is the old wall street saying - "The market can stay irrational longer than you can stay solvent."
bedhead 13y ago
I have two additional and unrelated thoughts on this. First, the astonishing price paid is a very tangible indictment on the management of Facebook, and Zuckerberg especially. Combine this $19 billion with the Snapchat offer and Instagram, and it's clear that Facebook is looking frighteningly like Microsoft, which is to say a behemoth of a company that seems to flat-out miss every next big thing. I can't even imagine how many more things Facebook will end up buying because they failed to build a good product themselves. If I was a shareholder (and I'm not, anymore) I would sell today and never look back. In a world where actions speak louder than words, Facebook is telling us they simply don't have the ability to create value internally. Second, this is an absolutely perfect microcosm to describe the ever-expanding wealth inequality. I'm not saying this as a lament, just as an observation. Technology has fundamentally changed the way that wealth is created, and I believe it's the single largest cause of the wealth gap. Think about it. Thirty years ago, what would it have taken to create $19 billion of value in a new company? How many thousands of employees would it take? How many years, if not decades of hiring people, paying them, paying suppliers, providing pensions, etc? By the time that company was worth $19 billion, so many people would have been involved...that wealth would've been very spread out. Today, thanks to technology, $19 billion was created in a couple years, concentrated in just a couple dozen people. Folks, there is no escape from this. The genie is out of the bottle.
- sentenza 13y ago
  Something's fishy though. Compare these acquisition numbers to the numbers that float in more "money-prone" parts of the software business. For instance, I've never heared of that kind of money being thrown around regarding the suppliers of software that banks and traders use. It's not that a revolutionary social service shouldn't be worth billions, but What's App is messaging. And messaging in the long term could just as well boil down to a specified standard with half a billion apps out there that support the standard. There's no reason why messaging should be a market that can be dominated by a single player over more than the social network percolation timescale.
  - adventured 13y ago
    I think that's a critical conclusion: messaging in the age of bytes is nearly worthless monetarily. You have to be able to hold your base hostage to really milk it financially (eg as Verizon and AT&T have done for years on SMS). It's why webmail and instant messaging have never produced much financial value. If you can't hold them hostage, I think you'll find your audience unwilling to pony up for what effectively costs nothing to transit.

by bedhead 13y ago

nilkn 13y ago

To be fair, WhatsApp has an incredible number of very active users. It's not like the companies in 1998/99 which had no revenue, no users, but spent millions on Super Bowl ads. That said, this is a staggering amount to pay. I'm not familiar with Facebook's financials, but I'm surprised they could even afford this. I'd chalk this up to Zuckerberg's paranoia about no longer being #1 and less to a bubble.

adventured 13y ago
WhatsApp has no serious revenue, the valuation is similar to the dotcom bubble in financial terms. Companies in 1998/99 weren't lacking in users. ICQ was purchased for $400 million in mid 1998, and had over 80 million users a year later (over 100 million by 2001). It too was run by a thin team, of just 70 people total (quite the accomplishment considering the technology of the time).
- nilkn 13y ago
  Perhaps you're right. I was thinking more of companies like Pets.com and less of ICQ, though obviously ICQ is a much more direct analogue to WhatsApp today.
teacup50 13y ago
> It's not like the companies in 1998/99 which had no revenue, no users, but spent millions on Super Bowl ads. It's not? They had users back then, too.
- nilkn 13y ago
  I do not know who "they" is referring to in this post.
gutnor 13y ago
You would hope that from one bubble to the other people learn something. The last bubble, people thought than making stuff available online was enough (Do X but on the internet). The first crisis taught us you need to have an actual business model and a way to acquire client. But then, Google happened. Big user base can be monetized. So we have a second bubble where acquisition of user is the main driver, with the assumption than like google they will find a way to milk their users. At some point that bubble will explode too.
- tostitos1979 13y ago
  Big user base monetization = ads. Are mobile ad cpi's really that high?
  - kunaalarya 13y ago
    Yes. $2-3 for games for quality users, and going up significantly once there's a mobile payments solution that works.
BogdanCalin 13y ago
Of course they can afford this. Facebook has currently a market cap of $173.35B (https://www.google.com/finance?q=FB https://www.google.com/finance?q=FB) They spent on WhatsApp $4B (cash) and $(12+3)B (in stock). $12B is nothing when you have $173B. If the $173B evaluation is correct, it's a totally different story. But as long as people think it's correct, Facebook can profit and buy any competitor with investor's money.

blantonl 13y ago

There is the old wall street saying - "The market can stay irrational longer than you can stay solvent."

bedhead 13y ago

I have two additional and unrelated thoughts on this. First, the astonishing price paid is a very tangible indictment on the management of Facebook, and Zuckerberg especially. Combine this $19 billion with the Snapchat offer and Instagram, and it's clear that Facebook is looking frighteningly like Microsoft, which is to say a behemoth of a company that seems to flat-out miss every next big thing. I can't even imagine how many more things Facebook will end up buying because they failed to build a good product themselves. If I was a shareholder (and I'm not, anymore) I would sell today and never look back. In a world where actions speak louder than words, Facebook is telling us they simply don't have the ability to create value internally. Second, this is an absolutely perfect microcosm to describe the ever-expanding wealth inequality. I'm not saying this as a lament, just as an observation. Technology has fundamentally changed the way that wealth is created, and I believe it's the single largest cause of the wealth gap. Think about it. Thirty years ago, what would it have taken to create $19 billion of value in a new company? How many thousands of employees would it take? How many years, if not decades of hiring people, paying them, paying suppliers, providing pensions, etc? By the time that company was worth $19 billion, so many people would have been involved...that wealth would've been very spread out. Today, thanks to technology, $19 billion was created in a couple years, concentrated in just a couple dozen people. Folks, there is no escape from this. The genie is out of the bottle.

sentenza 13y ago
Something's fishy though. Compare these acquisition numbers to the numbers that float in more "money-prone" parts of the software business. For instance, I've never heared of that kind of money being thrown around regarding the suppliers of software that banks and traders use. It's not that a revolutionary social service shouldn't be worth billions, but What's App is messaging. And messaging in the long term could just as well boil down to a specified standard with half a billion apps out there that support the standard. There's no reason why messaging should be a market that can be dominated by a single player over more than the social network percolation timescale.
- adventured 13y ago
  I think that's a critical conclusion: messaging in the age of bytes is nearly worthless monetarily. You have to be able to hold your base hostage to really milk it financially (eg as Verizon and AT&T have done for years on SMS). It's why webmail and instant messaging have never produced much financial value. If you can't hold them hostage, I think you'll find your audience unwilling to pony up for what effectively costs nothing to transit.