Who will lose his chair (or should we say shirt) this time?
G+ via Mashable published this fascinating info graphic of social media valuations last week. It is meant to create a debate over whether or not there is a valuation bubble in the social media startup space. From this graph we can observe that only Skype appears to be more or less reasonably valuated (based on its latest Microsoft acquisition) at a ~10x of revenue, considering that it is a company that has been around for a while with a growing customer base and a realistic business model.
The others? Well, we can observe an average of ~40X or revenue. This is of course, if we begin by ignoring those companies that have $0 revenue, zero business model and tens of millions in VC valuations, making their valuation multiples incomprehensible. Um...sorry, I meant to say "infinite". In other words, either VC's know something that the rest of us don't know about the ability of these social media giants to turn user bases into cold hard cash OR yes, we are experiencing a bubble where the oh-so-1999 term of "eyeballs" has been replaced by the apparently hip and cool "users".
It is hard to tell right now but if these valuations turn out to be nothing more than a musical chairs game (where everyone is betting to be the last one sitting when the fun melody stops playing) we can only hope that all these minds and money have at least created some technology of value for society as a whole. Isn't that what this is all about? It should be.
It is easy to get carried away by the market and keep betting up just because everyone else is doing so. What the rest of us must not forget is the relative value of a project in terms of its real outcomes. What problems are these start-ups solving for us? (By the way, I thought this was the VC mantra) How will they change our world for the better? Are they in fact more valuable than life-saving advancements or green tech? Maybe those are hard or unfair questions to ask given that this is a completely different industry but they make perfect sense to me. Social media tech is valuable technology (I am the first one to say it since it has been most of my career) but we should nevertheless put it into perspective with the value it brings to our society.
So what? Their money, their loss right? True. But money wasted in fluff is money that is inefficiently spent on bad projects while drying out potential investments in other needed areas of our society. In an ideal world, financial value should reflect social value. It is too sad that we live in a time where some of the most needed advancements for human kind are deemed unprofitable (laking the sexy high X's) and so we are left funding the glitter and candy stores. Enjoy the fun birthday party while it lasts and the music still plays! Then again, I may be completely wrong and color.com IS life-saving stuff...heck for $41 Million, it may be the reinvention of color itself.
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