A few days later, a financial opinion Web site, 24/7 Wall St., speculated that TechCrunch, a blog that grosses about $200,000 a month, might fetch $100 million or more from an acquirer such as CNET Networks (CNET ).
Now there's talk that RockYou!, the second-largest maker of software "widgets" that add features to social networks such as Facebook, might seek up to $500 million to sell out.
These lofty valuations have a lot of people in the Venture Capital world squirming. Many worry about a replay of the dot-com boom, which peaked early in 2000, only to crash later that year. "Companies like Facebook are driving everybody bananas," says Sumant Mandal, managing director at Clearstone Venture Partners.
Buyouts by established companies, from Google, Microsoft (MSFT ), Yahoo! (YHOO ), and eBay to News Corp. (NWS ) and CBS (CBS ), Dot Com like as they may appear, serve a valid strategic purpose. Marketers and media companies alike fervently believe there are lucrative opportunities to get people engaged with their brands, products, and ads in ways Madison Avenue could never dream of.
Super valuations signal an important transformation in the Web economy, one that will shake things up even more than the dot-com bust did. The Web is changing from a place where people find information, entertainment, and products over to a social medium where they share videos and communicate with friends on Facebook. The new economy is about people connecting to people.
The BIG are Buying
Consider recent moves:
Microsoft, which was said to be interested in buying a 5% stake in Facebook for up to $500 million.
Microsoft closed on its $6 billion acquisition of online ad firm aQuantive.
Yahoo recently bought online office productivity software maker Zimbra for $350 million and ad network BlueLithium for $300 million.
Google alone has bought 11 Web outfits so far this year, about double last year's pace, including a "microblogging" service called Jaiku on Oct. 9.
Media companies are accelerating their activity, too, making News Corp.'s 2005 purchase of MySpace for $580 million look reasonable.
CBS, for instance, bought a far smaller, more targeted music site called Last.fm in May for $280 million, a price that one venture capitalist says was more than five times what he expected.
According to Reid Hoffman, chairman of professional networking site LinkedIn and an angel investor in Facebook and other Web startups: "Strategy is a lot more important than cash to these companies."
Fueling the New Economy
Some members of the fast-growing Facebook ecosystem pin their analyses on the idea that the company could become the next Google. Lee Lorenzen, CEO of Altura Ventures, which recently launched a fund for companies building applications for Facebook, even makes the case that Facebook is worth $100 billion. He's assuming that various new kinds of ads and e-commerce will help Facebook produce $2.2 billion in profits by the end of 2008.
Web 2.0 and beyond capabilities is fueling the new economy. Google can still spend big, and tech and media executives feel they need to keep pace in building the new Web. Web 2.0 Startups themselves are becoming the raw materials of Silicon Valley. In the first half of 2007 $464 Million in venture capital was invested in Web 2.0 firms chasing the new economy with unique value propositions.
The Ecosystem of the new Web Economy is just being built and fueled by creative possibilities from the small. The BIG, the likes of Google and News Corp.- the ones that historically know how to make money in the new economy, are watching and acquiring the small. The assemble line of the new ecosystem is producing expectations beyond previous experiences. Hype or not, real money is pouring into The Relationship Economy and the tail of future developments looks to be very long.
What say you?