Web Startups: Silicon Valley's New Components
Posted by: Rob Hof on October 11, 2007
I just took a stab at figuring out what’s up with some of these seemingly crazy Web valuations and buyout deals, from $10 billion-plus for Facebook to (and I really can’t believe this) up to $500 million for RockYou. (I missed this, but apparently Mike Arrington of TechCrunch, itself the victim of pure speculation that it could be worth $100 million, told security at the Graphic Social Patterns conference in San Jose earlier this week to remove Lee Lorenzen, who thinks Facebook is worth $100 billion.)
I must admit I went back and forth on this one at first. No doubt that some of these valuations, and the dizzy assumptions behind them, are getting excessive. But I also came to think it’s kind of a version of punctuated equilibrium in evolution. Random appearances of technological mutations catch on suddenly, for no apparent reason at first, and the instant communications of the Internet allows everyone to adapt immediately to the new thing that works. The attention can be excessive, but often enough, it ends up settling on real innovators.
Of course, evolution has produced some dead ends, too. But to depart from this metaphor before I twist it into knots even further, I think the crazy valuations may end up crowning winners—and losers—faster than ever. And even the ones that don’t win really big can have a future inside the tech and media giants. As Paul Graham of Y Combinator recently wrote, startups themselves are becoming commodities. Silicon Valley is creating stuff not just out of chips and disk drives anymore, but out of startups themselves.
Update: The New York Times weighs in on the bubble question today. I don’t know, I think if you look closely, you don’t actually find that many crazy valuations (and some of those mentioned haven’t even been realized in actual deals, and probably won’t.) If there’s a bubble—and you never know until later—it seems like it’s going to deflate quietly, in the form of a lot of acquisitions. Which is what happens all the time anyway. Even eBay’s huge Skype writedown produced nary a ripple in the market.
Update 2: Ah, Saul Hansell comes closer to the reality, I think.