Dot-Com Bubbles
By now everyone has heard of the "Dot-com" bubble. Though most people only have limited knowledge of what this means, even less people are aware of the growing trend that some people have called the second Dot-Com crash. Interestingly enough, after such a terrible failure just 6 years ago, venture capitalist companies such as YouTube and MySpace are raking in huge amounts of cash annually. Original predictions after the NASDAQ crash following the abysmal performance of many of these internet start up companies placed the venture capitalist firms at half their current value. However, surveys show that VC's are actually rising in the corporate world. The question that hangs in my mind is: What is the problem?
Of course the subsequent market crash in the early 2000's was affected by the failure of many of these internet companies to deliver an almost mystical success, but the chances that an economic catastrophe like that will simply be repeated are slim. for example, there are many video sharing websites out there (VideoEgg and Video Bomb, Blinkx.TV and Blip.TV, Guba and Grouper), but the number of quality domains is much more concentrated than that of the 90's. Rather than simply dumping money into any start up, as investors did in the late 90's, well-established sites with large user-bases are being watched carefully by investors. Also, large companies such as Google and Yahoo! are each supporting their own form of online media / entertainment, the largest growing sector. Another interesting point is the value being placed on well known blogging sites. As one blogger points out, many of these projections are simply ridiculous. He is reinforcing a point that many of the doomsayers fail to take into account. It is impossible to say what these companies are worth until they have proven themselves. As mentioned on this blog, one start up company that was offered $750,000 declined the offer. They are still around today, and their (arbitrary) net-worth is upwards of $2 mil. Now of course, take that number with a grain of salt, but what is most important: That company is still around. So now the idea of an online venture capitalist has taken a much more classic economic turn. Where before every ludicrous online venture was seen as a potential goldmine by investors, we now see a much more careful and calculated investment trend. This is no different than any traditional investment. An investor with the necessary financial means wathches a potential company's business practices, finances, and success. After the company is established, the investor makes an informed decision to put money into that company's particular endeavor. The idea of frivolous, chaotic investing without any pragmatism is no longer an issue.
So why is this such a big issue? As with any form of new, large investments, there is a certain level of healthy cynicism one must adopt. The largest reason, though, is simply a lack of revenue. YouTube alone is operating anywhere from $900,000 to $1.5 mill per month with 0 profit. At the rate that YouTube is growing (65 thousand videos uploaded per day), their financial woes are only speculated to increase. In addition, legal issues are arising over the sharing of copyrighted materials such as clips from TV shows and movies. Despite all this, the traffic generated by these sites is recognized as being invaluable. So it seems that the real problem is not whether or not these sites are worth money, it is simply how do we draw the money from the environment. To put it physically (pardon the ridiculousness of the following example, it is purely on principal), imagine that YouTube were a building. There are over 12 million unique visitors to this building over the course of a month. While they are not specifically there to pay any money, the market potential is very high. Again, while that was an argument for the dot-com boom of the late 90's, people are much more comfortable with spending money online than they were then. Also, internet traffic has increased, so the market is theoretically larger. Of course, the idea of a seemingly "infinite" market is tragically mistaken. I doubt that in the near future we will see huge amounts of revenue being generated by these sites if they are to continue functioning as well as they are, especially supported by the traditional methods of banner advertising. So while I agree that there is something of an untapped market in these sites that gives them great value, I will also make this statement. Until some smart guy or girl comes along and finds out just how to tap into it, these ventures will remain risky.
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Quick follow up, looks like the legal battle is heating up over at MySpace and YouTube. This just adds another interesting twist on how money is going to be made. Seems like everyone just wants a piece of the pie...
Comments
Posted by: Marks Enterprise
Posted on: July 16, 2007 10:06 AM
The second dot-com crash is really making it BIG nowadays. The secret to these site's success I guess is its unique way of driving traffic through videos or simply by being interactive. People can react by sharing ideas or commenting posts and thats a good thing because thats what most people like. By the way, I know some ways on how to make money online. Please check it out. Thanks!