Look no further than Friendster for evidence of users' fickleness? Friendster wasn't killed by the market; it committed suicide.
And there haven't been Internet companies for the last 100 years. 50 years ago switching newspapers would've been a much different thing than switching websites today.
Sorry, but you're just playing semantic games there. "Ad-supported business" and "ad business" means the same thing in this context.
Google is a ad monopoly, they own the method of delivery, the ads, the monetary distribution and the placement.
That's an advantage that no other company can claim, and basically means that you can't compare them in this context at all.
Google could kill their open AdSense product completely and still make billions dollars selling ads on their products.
That statement further supports your claim. The time people spend working on their profile, building friends and relationships ... etc is probably worth much more to them than a $300 iPod.
What I am saying is that ad-based businesses aren't stable enough to warrant the valuations that we're seeing right now. The core audience - the user - is not loyal enough to justify valuations that would take years of sustained behavior to see any ROI.
The cause of Friendster's demise is irrelevant - it's the speed at which it happened that proves the point. 19 million users lost in under 2 years is fast even for web apps.
Ads are a perfectly legitimate form of revenue.
"Consumer loyalty is directly linked to the amount the consumer invests out of pocket."
"With social networking sites the amount spent is zero - and the loyalty corresponds."
"Facebook and mySpace are only as valuable as the next big thing. In other words: they are fads."
What I'm saying is that because consumers that don't invest out of pocket are fickle and that ad-revenue follows consumers, valuations of companies that survive solely on ad revenue should reflect this.
Right now they do not, hence they are overvalued. When a company is overvalued, it's not a good time to invest. The fact that there continues to be a market is based on the fact that Facebook, or a site of equal stature hasn't actually had to justify its value.
Once it does, the house of cards will adjust a little.
If consumers who didn't pay for stuff were not making investments in other ways, I suspect it would be easier to get users to register. Time is an investment, as is trust.
What makes you think Facebook can't justify a few multiples of MySpace given its trajectory?
At 100 million visitors, $25M translates to $4 a month per user in ad funds. $4, per user, per month, sustained for 24 months. Just to break even.
Those are insane prices at insane growth trajectories. You can call that justification of a valuation, but I call it unsustainable speculation.
The people who believed Google would monetize their business in a huge way seemed to do alright. I don't think Murdoch regrets his decision. I do think people should be cautious but you're going way beyond saying just that.
The money being talked about though for Facebook and others cannot possibly be recovered though unless a number of stars align, and that's too much for me. ;-)
Still think it's crazy?
He's projecting 60% ish growth.
Unless I'm misunderstanding what you are trying to say, you're off by an order of magnitude:
$25M/100M = $0.25
Maybe it's not so insane after all.
What valuations? You mean profits? I honestly don't know what companies you're talking about. Google? You're predicting the downfall of Google? Get in line -- there's been one for years, right next to the one that predicts Apple will Die Any Day Now[tm].
He can correct me if I'm wrong, but I don't believe Google was who he had in mind when he made that statement.