History Repeats. Again.

By Gerald McGrew on June 22, 2012 in Other

There’s a joke going around in tech circles at the moment to describe the current climate of venture capitalism: a new pub opens and 1000 people visit on opening night. No one spends a cent. The venue is declared a massive success and is sold the next day for $10m.

Sound familiar? Probably not, although anyone keeping their eye on some of the big-dollar acquisitions made lately by Facebook, LinkedIn and others will understand it.

I’m one of many who have expressed disbelief at the current pre-IPO valuation of Facebook, now at approximately $120 billion. That’s a shitload of money for history’s greatest stalking platform. So while Facebook might have the cashola to buy whatever it likes, last month’s purchase of uber-trendy Instagram for $1 billion raised just as many eyebrows as it did hipster moustaches. There are any number of reasons to buy it; 50 million users, strong growth, and the fact that Facebook are muppets when it comes to mobile are just a few. Yet the fact remains that Instagram brings in zero revenue.

Facebook’s piggy bank certainly dwarfs LinkedIn’s, with its pissy little market capitalisation of only $11 billion dollars. Still, that’s a lot of value attributed to the world’s largest collection of business card bullshitters and résumé revisionists. Last month LinkedIn joined the fun, buying a company called SlideShare for $119 million dollars.

SlideShare is basically an easily shared online version of PowerPoint. And while you might imagine that ‘easily shared online PowerPoint’ would be about as popular as ‘airborne Herpes’ or ‘Eddie McGuire naked in your kitchen’, since 2006 over nine million presentations have been uploaded to their platform. And if it’s anything like PowerPoint, about 8.9 million of them bored the reader to the point of self-mutilation. Yet given that it’s a free service to use, the question is again being asked: how is the new owner going to turn a significant buck with it?

To put it into context, the stud in the online monetisation scene is still Google. They coax/gouge an average of about $40 from each user per year. LinkedIn is way behind at about $7 per user, and Facebook is about $4. For Facebook in particular, buying an extra 50 million users for $1 billion with no extra revenue attached to them is definitely a long-term play. That’s a nice way of saying they have absolutely no idea how to drag cash out of those ridiculous-looking hipster snappers any time soon.

It’s not just the big companies and venture capitalists making these purchases. Even our humble local entrepreneurs have benefitted from the dollars being flung about for half-sucked ideas. I won’t mention names, but there has been some irresistibly A-grade Aussie shit spun to US investment companies. And good on them I say! Bring that dirty Yank coin back here and knock down the house next to mine. We need another douche palace on the street.

Of course there is ‘The Word That No One Says’, but f**k it, I’m going to say it anyway: ‘bubble’.

About 12 years ago there was a similar vibe. Internet businesses that many suspected were overvalued were paying huge dollars for other online outfits that made little or no money. It all ended in tears, with everyone giving their Porsches back.

Maybe the house next to me is safe for a while yet!