| To this excellent article I would add one fact. A huge difference between the dot com bubble and now is that Sarbanes-Oxley makes IPOs a lot less appealing. That is the most likely reason why acquisitions and late funding rounds have replaced IPOs. This also means that the amount of money that can pour into a bubble is less than the last time around. That said, bubbles usually are based a new theory about valuation for some key asset. The echo chamber of people who believe this theory bids up the value of that asset until they collectively do not have the resources to bid it higher. Then when it starts to collapse, and everyone abandons the theory, the bubble pops. Given that, the growth of valuations is very worrisome. Doubly so since they center around social apps. One of the elements of the last bubble was the widespread belief in Metcalfe's law, that the value of a network scales as the size of the network squared. I was one of several people who came to the conclusion that O(n log(n)) is a better estimate. See http://spectrum.ieee.org/computing/networks/metcalfes-law-is... for more on that. Networks were not worth as much as people thought last time. This time round we're again seeing a belief that social networks (such as the one Facebook owns) are worth a tremendous amount. And this belief persists despite the fact that those networks are regularly being forced to buy newer social networks at high valuations because they can't prevent new entrants from gaining traction in the marketplace. So current valuations seem to be based on a theory which we have fairly direct evidence is wrong. That fact is my top reason for believing that current valuations will not hold up over time. |
Instagram in photos, and WhatsApp in messaging competed with Facebook in a subset of social networking.
All Facebook has to do is acquire winners in the new major subsets that bloom, and then the competition is over for each. It's a perpetually affordable game for FB to play, because each new blooming subset of social networking, is only going to be worth a fraction of the total Facebook corporation.
There has been no new Instagram since Instagram. Facebook + Instagram have in fact prevented any new Instagrams from succeeding, they already won.
It's likely that Facebook picked a winner in WhatsApp as well, at least for the vast majority of the markets they compete in. There will ultimately only be a few major messaging apps that matter, FB bought one of the few winners.
There has been no challenger to Facebook, the core system, in years. They won, it's over. There is no inbound next Friendster or MySpace to attempt to dethrone Facebook.
Where is Path? Where is Ello? (it's losing the little attention it had, that's where) Where is Diaspora? Where are the countless others that have tried? Irrelevant, that's where.
Facebook is worth so much because they have a monopoly in consumer social networking (in a lot of big markets), that is presently worth $3 billion per year in net income, and will probably be worth $6 billion per year within ~36 months.