The Web 1.0 bubble wasn't based on the way in which people found the money to buy these stocks or the hubris in the expectation that these stocks would always go up. It's just about fundamentals. When you buy a stock, you are buying how much the company earns today and adjust that for how much it could earn, say, ten years from now.
People bought Pets.com either with the naive expectation that it would earn billions in the future or with the expectation other people would think so. There was no evidence, just lots of hope and the eternal wish to get rich.
So you and Marc are telling me that Facebook is really worth $10 billion. You two are saying that that's a realistic expectation based on an objective evaluation and anyone who doesn't agree should be ridiculed. Ah... there's the hint. Ridicule is a cover for fear. Personally, I don't need to hide. I have the fundamentals -- and time -- on my side.
I think iamelgringo's point is that it doesn't matter if Facebook is really worth $10 billion or not, because no one's actually paying that much; and the entities paying some percentage of those valuations are insulated from the effects of a crash.
The term "bubble" scares people because of events such as those that happened in 2000-2001. It's an imprecise term because of that. If you mean "inflated valuations" we might be in a bubble, if you mean "reckless speculation by average consumers" then we're probably not.
If Facebook turns out to be a dud before they ever have an IPO, who are the big losers? A few hundred employees, and some professional investors. Microsoft is still plenty profitable without Facebook, and VCs will bounce back or be replaced. It'll indirectly affect many others, but the typical portfolio of a typical working American will remain relatively stable.
Conversely, if 500,000 average consumers average $20,000 invested in Facebook and it suddenly goes bankrupt, that's a huge problem. It causes a massive disruption in their lives, and it will have a much more noticeable indirect effect on everyone else. (eg nobody can afford to buy Christmas presents this year)
It's a free market, and Facebook's valuation is whatever someone is willing to pay for a piece of Facebook. If Big Co purchases a piece of Facebook for $500 million, then someone at Big Co made a guess that either the software, the community or the people were worth that much.
Mind you, I don't think that Facebook has a 10 billion dollar valuation, but that's a moot point, I don't have the $500 million to purchase those shares.
My hunch on the Facebook deal, though is that Microsoft is trying to beat Google to the punch and wants to provide search services to Facebook. The software, community or people might not be worth that much to them, but I'm sure that keeping Google out of Facebook probably is worth $500 million to them.
What's the worst case scenario for Microsoft? Google doesn't get Facebook's search, Facebook goes poof in a couple of years and Microsoft is out $500 million. No big deal. Microsoft's cash reserves are well over $25 billion anyway. They have to spend it on something. Might as well spite Google with it.
On one hand, it's clear to me that whether or not there's direct financial value to building a super popular site, there's definitely societal value to products that people like. I really, really want stuff like Facebook to be worth a ton of money, because they mean something to (a lot of) people. Plus, my personal instinct is to build social websites, so if I'm gonna be a millionaire, it's going to be along the lines of something web2.0.
On the other hand, it absolutely kills me that a tech company can get a valuation of 100x of their current revenue, mostly on the hope that somebody somewhere'll figure out a way to make real money on a product (and in the meantime people will make acquisitions believing that it's an inevitability). Posts like pmarca's make me feel like people believe in Facebook because if Facebook doesn't work, nothing will, and we really will be back to boring 2003 instead of exciting 2007.
The Web 1.0 bubble wasn't based on the way in which people found the money to buy these stocks or the hubris in the expectation that these stocks would always go up. It's just about fundamentals. When you buy a stock, you are buying how much the company earns today and adjust that for how much it could earn, say, ten years from now.
People bought Pets.com either with the naive expectation that it would earn billions in the future or with the expectation other people would think so. There was no evidence, just lots of hope and the eternal wish to get rich.
So you and Marc are telling me that Facebook is really worth $10 billion. You two are saying that that's a realistic expectation based on an objective evaluation and anyone who doesn't agree should be ridiculed. Ah... there's the hint. Ridicule is a cover for fear. Personally, I don't need to hide. I have the fundamentals -- and time -- on my side.