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> Hell...there are hundreds (if not thousands) of companies just doing advertising services, alone.

http://idlewords.com/2015/11/the_advertising_bubble.htm

> I often wonder how much of Facebook's revenue (for example) consists of valley startups trying to micro-target indifferent consumers.

During the dot-com boom, a large fraction of Yahoo's revenue was coming from startups, who were using their VC money to pay exorbitant amounts for partnerships with Yahoo. You can guess what happened at Yahoo when the party ended in 2000 and the money men went back to NYC.

Yep. I remember it well, but people seem to think that since these "partnerships" aren't (obviously) taking place, it can't happen again (also, that idlewords piece is great. everyone in tech should read it, and feel at least a little fear).

There's this great segment in eDreams where the founder of Kozmo.com flies to Seattle to announce a partnership with Starbucks, wherein Starbucks gave them a small amount of money, and they committed to paying Starbucks $30 million a year over five years to put their boxes in Starbucks' stores. Kozmo pitched this as an investment (personal aside: lol), and Starbucks announced that this would increase earnings by five cents a share for fiscal 2001 [1]. Kozmo was, of course, dead by early 2001.

It's painful to watch this now, but it really seems like the same things are happening again. The flow of money is just happening in real time, and not being projected forward on a five-year basis and booked as current revenue. (That happens at the unicorn stage instead, where we seem to have made up fun new ways of booking future recurring revenue as present-day revenue growth, and traditional accounting rules do not apply.)

[1] http://www.wsj.com/articles/SB950479618236414189

> it really seems like the same things are happening again

Indeed, Starbucks pulled almost the exact same thing in 2012 with Square:

http://money.cnn.com/2015/10/15/technology/square-starbucks/

> That appears to be an understatement. Square, which filed to go public Wednesday, said that it has lost a grand total of $71 million from processing Starbucks payments over the past three years.

This partner overall sounds better for sbux.

What are examples of these companies that are public/recently IPO'd?

If you're referring to adtech, Rocket Fuel IPO'd in 2013, and has steadily declined since then[0]. They raised $77M in VC funding, and their current market cap is $138M. The post-IPO peak valuation was ~$3B.

0: http://finance.yahoo.com/echarts?s=FUEL+Interactive#%7B"rang...

That's also basically what happened to mighty Sun after it became the Dot in Dot-Com, right?

Sun, Oracle, AOL, EMC, Nortel, Lucent, Cisco - all took huge shots from the ecosystem of dotcoms going under.

Cisco for example, in the 4th quarter of 2000, grew sales by 61% (55% for the year). Famously they had basically accelerated growth every quarter for a couple of years. The projections had gotten almost insane, about how big Cisco was supposed to be in just a few more years.

The money quote from August 2000:

"We see no indications in the marketplace that the radical Internet business transformation in practices like customer service, supply-chain management, employee training, empowerment, and e-commerce that is taking place around the world today is slowing -- in fact, we believe it is accelerating globally," said [then CEO] Chambers.

3Com. They basically shut down their networking division because their management and investors figured that they were now a wrapper around Palm.

At JavaOne, I remember seeing Bill Joy predicting that $1T of wealth creation was going to grow to $10T. I think this was in 1999. A few years later, he warned that nanotech may turn us into grey goo. [I may be exaggerating a bit] Birth of a pessimist?

Exactly.

WeWork is in my mind, a good example of a company that will suffer once their customer base burns through all of their VC money.

http://www.businessinsider.com/weworks-financial-projections...

Heard an interesting take on the unicorn state of play this weekend on Barry Ritholz's Masters in Business podcast. William Janeway (Warburg Pincus) thinks there is definitely a unicorn bubble going on, but just like the railroad bubble in the 1800's and the automobile bubble in the early 1900's and the PC bubble in the late '70s and early '80s and the Internet bubble in the '90s it will end with a lot of people losing money, quite a few making money, and a lot of companies going out of business, but with a lot of survivors and a lot of infrastructure that will fuel ongoing progress, and that this is a good thing on balance. His belief is that equity bubbles are a lot less dangerous than credit-fueled bubbles like the housing bubbles of the '00s.

What would be the infrastructure this time? Instacart drivers at the ready...? The whole ecosystem that's been pushed seems to be being pushed precisely because there's no infrastructure involved, leading to the asymmetric cost structures so championed by PG/YC.

The whole devops toolchain really came of age in this bubble. The same stuff you used to build yet another instagram clone can be used for a medical analytics startup. It's how things have always been in tech. Yesterday's toys become tomorrow's tools.

I suppose cloud computing infrastructure investment would be one.=

I'd say it's even better than that. At my last company we used our own hardware, but we still benefited from Docker, Consul, Chef, graphana, etc. There's a lot there that is cloud-agnostic.

For example, service discovery is still service discovery. You still have, say, a hundred machines running the listeners API. Are you going to keep a manual tally of that? Or better to just start consul client from the ansible/chef provisioner, and let "dns" handle the load balancing. You can implement "connection draining" by downing the health check url before going offline on a node. Just one example, but yea, there's a lot of ease and maturity in the new services way of doing things now.

I think you are overestimating how much they spend compared to Kellogs, Home Depot, Verizon, Walmart, Car companies, etc.

Those big players spend so much money. If the funding river dried up then sure, sooner if there smaller ad-tech might be at risk, but the big dollars will stay put.

"the regional effects of those redwoods are tiny in comparison to the "robust ecosystem" of mushrooms that grows in their shadow."

If "regional effects" follow a power law this isn't true. We know valuation does, so why not these effects?

"regional effects" meaning # of employees or gross $ of payroll.

who employees more people: FB or the countless "on the come" app cos /free-to-play game cos that are paying FB $10 per app install?

VC money is sucked up from around the US (via LP's as foundations, etc) and deposited in SF for use in Payroll for companies that are loosing money, and transfering VC money to FB, that inflates FB valuation, a valuation that VC's feed back into their models of expected returns on investment, there by increasing investment. In this way the positive feed back loop is completed.... and $3,500 per mo 1-Bedrooms are created as a side effect ;)

the payroll base of a profitable company is constrained by its real revenue.... the payroll base of an unprofitable company is not restrained by its revenue.

There are currently 144 unicorns valued at $525 billion

https://www.cbinsights.com/research-unicorn-companies

Aren't these young infrastructure companies just early adopters of advertising tech that mainstream non-SV companies will adopt once they "cross-the-chasm"?

>>Meanwhile, the theoretical market cap of all current private-market unicorns ($300-$500Bn, depending on the source)

I am sure there are many unicorns that are overhyped and are going to fail. The 300Bn is same as market cap of Facebook. If one invested in every one of Unicorns at current market, I think its most likely they will make profit on the investment.

Don't forget everyone thought FB was Way over valued when MSFT invest at 15Bn valuation.

Well put, this is looking exactly like a post .com bubble. A rising tide lifts all boats.

So when the tide goes out....