New Year, New Tech Bubble?


bubbleADOTAS – First there was a $200 million round for Twitter ($4 billion valuation?), then a $950 million round for Groupon ($5 billion to $8 billion valuation?!?) and now $500 million for Facebook ($50 billion valuation?!?!?!?!?!??!?) — what better way to ring in the new year than some new tech bubble paranoia?

Well, the bubble talk really got rolling last month when Union Square Ventures’ Fred Wilson and other prominent VCs publicly intoned that valuations for private social media companies (Facebook, Twitter, Groupon, Zynga, etc.) were getting out of control — and that was before Twitter announced its $200 million bounty.

It’s hard to call a $500 million investment/$50 billion valuation in Facebook crazy when the social network’s estimated revenue for 2010 was $2 billion. Then again, Business Insider notes that Facebook is now worth twice as much as Starbucks — does that mean a Like is more valuable than a half-caf, soy white chocolate mocha? — and more than the major American airlines combined.

But an ’11 tech bubble would be remarkably different from the dot-com-go-boom of the late ’90s because all the speculated frothy companies are private. GigaOm’s Mathew Ingram makes the interesting comment that in the case of a new tech bubble, “the only ones who would arguably suffer from a tech-bubble popping are the so-called ‘sophisticated investors’ who take part in secondary-market trades.”

Of course, they would suffer if we’re in a new social media tech bubble that burst… Tomorrow. If instead the market is still exploding — which Goldman’s $450 million cash-drop into Facebook would suggest — the sophisticated investors just might prove themselves worthy of that title and profit handsomely.

The argument for a social media bubble seems to be, “Where else do these companies have to go?” A reasonable comment about Groupon, whose own CEO suggested the site is a flash in the pan. However, the daily discounter is expanding to new markets and has fresh products in the pipeline.

Twitter’s U.S. growth may have stalled, but it has all kinds untapped revenue potential through advertising. As newer game CityVille proves itself even more popular than FarmVille, Zynga is making bold moves into the mobile social gaming space.

Perhaps we should save the bubble talk for when all these hypervalued companies actually jump into the public sector?


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