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Comment by OzzyB | Hacker News Reader

As a personal exercise please go and watch this documentary:

Startup.com http://www.imdb.com/title/tt0256408/

And then ask yourself if what happened then is anyway similiar to what is happening now.

For starters, I think you will realise that most startups circa 2000/1 were nothing more than litteral "thin air" -- compare that to the likes of Facebook who actually have revenues, hell, they even have a product.

I know that some of the valuation numbers being thrown about can be unreal, but I'd rather have a converation about whether FB is worth $1b or $10bn or $100b, instead of whether is has any value at all.

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But did Instagram have revenue? The question wasn't if investors back then had money, but if the company they invested in were making any money. Facebook had money, Instagram wasn't making any. So to me that's very similar.

Also he's right that now that Instagram was valued at $1 billion, we're already starting to see others like Square immediately looking to raise capital at huge valuations, just because Instagram was valued so high.

Besides, doesn't it even that even Facebook and others are valued based on how much more others will invest in it later on? That's pretty much how Facebook's valuation grew, and how they got the $100 billion IPO, too.

But isn't that a flawed philosophy? Shouldn't companies be valued based on how much potential for making money they have in the future, and not how much potential they have to attract more capital at a higher valuation?

> But did Instagram have revenue?

This is a tired argument. Everything is a tradeoff. In this case it's a tradeoff between adoption and revenue. Hipstamatic chose the revenue-first approach (they apparently made plenty of money) and Instagram chose the adoption-first approach. Which one is more valuable (and you must include strategic value in this evaluation!) right now? Clearly Instagram.

> Also he's right that now that Instagram was valued at $1 billion, we're already starting to see others like Square immediately looking to raise capital at huge valuations, just because Instagram was valued so high.

I'm very, very skeptical that this is the case. Has anyone involved in the situation made any statement hinting at that?

> Shouldn't companies be valued based on how much potential for making money they have in the future

Yep! That's what people are doing.

> Hipstamatic chose the revenue-first approach (they apparently made plenty of money) and Instagram chose the adoption-first approach. Which one is more valuable (and you must include strategic value in this evaluation!) right now? Clearly Instagram.

Not necessarily. You're assuming that had Hipstamatic chosen the adoption-first approach they would have been a more valuable business. That assumes that both products are basically identical and the successes and failures turn only on whether the app is paid. Conversely, you're assuming that the only reason Instagram got such widespread adoption is because it was a free app.

> Yep! That's what people are doing.

Um, no they aren't. Most companies in the social space are valued based on how much hype they can generate, not how much money. A lot of people assume that an app like Path must be worth at least a billion. Is that based on money-making potential? I'm not buying it.

Instagram is an outlier. If you have ever looked at raw Internet traffic you will know that Facebook is largely a photo site. So it was a choice for Facebook between a potential competitor and making a jump ahead.

When these deals become commonplace, we'll be back to the bubble in full force. The rumor about Cloudflare worries me more.

But did Instagram have revenue?

While that's a valid question, one sale of one company does not a bubble make.

We really, really have to stop saying "bubble" every time some company gets sold for a greater amount of money than we think it's worth.

The tech companies in question (e.g. social media) are not worthless, but they're almost certainly overvalued. Eventually, the market is going to realize this and then they'll be undervalued for a while as a reaction.

It's probably going to go back and forth in cycles between overvalued and undervalued for a long time because no one really knows what the market value of an intangible digital asset is. Can anyone explain how much money the data in the Facebook databases are worth?

Just like anything else of value: whatever people are willing to pay for it.

Exactly… but how much are you willing to pay for it? How much is it _worth_ to you, as a corporation? This too will fluctuate.

> For starters, I think you will realise that most startups circa 2000/1 were nothing more than litteral "thin air" -- compare that to the likes of Facebook who actually have revenues, hell, they even have a product.

In 2000/2001 Yahoo! was one of the biggest websites on the planet. Its revenue doubled in 1999. Between 2000 and 2001 Yahoo stocks went from a high of $118.75 to $4.05 (though they obviously recovered to an extent and are still a cash cow today). Perhaps that could be a good comparison for FB?

They also spent big on acquisitions in the late 90s just before the bubble burst.

Just because it isn't the same size or type of tech bubble, doesn't mean it's not any sort of bubble. I'm not saying it is a bubble (I haven't done enough research to form an opinion) but you can't look at previous bubbles and declare we currently aren't in one because the circumstances aren't identical.

For a further personal exercise I would recommend reading the first half of "Extraordinary Popular Delusions and the Madness of Crowds" which gives some insight into early economic bubbles. I think the fact that things have changed so much since it was written allows you to easily see the things that don't change, namely the snowball effect of hype (madness of crowds).

Edit: The Tulip Bubble that meric mentioned is in the book. Really insightful stuff.

>> And then ask yourself if what happened then is anyway similiar to what is happening now.

The US property bubble had nothing in common with the Tulip bubble either. Tulips don't even pay interest but property paid rent!

"Tulips don't even pay interest"

Oh, but they do - in the form of more tulips. Yes, even that bubble started with a sane rationale. A thing to keep in mind.

Sure, but Facebook is like AOL or Yahoo in the 2001 analogy it seems to me. Real companies at the top which are overpriced which leads to hyped prices for lots of other companies like Pinterest ($7.7 Billion price tag as per Forbes), Instagram etc. Is it 2001? No, because there's that lesson to look at and learn from, but it's a bubble 'we're' in.

> Is it 2001? No, because there's that lesson to look at and learn from, but it's a bubble 'we're' in.

Agree. As they say - history does not repeat itself, but it does rhyme.

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