Dot-Com Flame Out 2.0
Anyone who was around for the last Dot-Com Flame Out (affectionately called DOT-BOMBS) remembers how that scam went. Valuations were mostly based on revenue growth (it was the new-new economy but old-old venture money). Groups of Dot-Coms started “trading services,” many in the form of advertising, to make the numbers exceed what the old economy investors wanted. Yes, a token few pointed out these companies weren’t actually making any money, but the hysteria over exponential revenue growth made idiots of rich and poor alike.
That was Dot-Com Flame Out 1.0, mostly. Eventually people began to realize these companies should have made money and should be able to pay their bills without more venture capital. And, well, your retirement account paid the price.
I believe I have discovered the vehicle by which Dot-Com Flame Out 2.0 will happen. In fact it is already in play. Even NPR has been running stories on this, but not quite nailing it. I wish I could have found a link to the one I listened to last night during the money report. The Wall Street Journal and others have been talking about eye-popping valuations and the various methods of arriving at them.
The valuation which is sticking in my mind is “eyeballs.” Yes, a good many are still buying the bull about the Internet being and advertising ecosystem so they are swallowing this eyeball scam hook-line-and-14-sinkers.
What scam you ask? Why only the newest and easiest non-cash way to raise money. Artificial eyeballs. You’ve all seen it, but you haven’t thought about it. Perhaps you thought “Oh, this is convenient, now I only have to remember one password,” but you didn’t actually think it through.
“What didn’t I think through” you ask?
Sign in using your FaceBook, Twitter, Google+ (okay, there are probably only two Google employees on Google+ so that really doesn’t count.) Many of the Web sites offering this “feature” are new and getting lots of buzz. The official word I got from one of them was they didn’t want to spend their precious startup money developing a login and validation. The dirty little secret is they can lay claim to millions of users the day the site went live even though not a single one of those users has ever been to their site.
Helloooo venture capitalist, have we got eyeballs to sell you.
Once the news of a multi-billion dollar valuation hits the press all of those “skilled” chart lemmings follow the stock over the cliff.