Tuesday, October 10

Video Frenzy!

The Google YouTube marriage is rocking the tech headlines right now. It's an interesting play that pits Google closer to being a media owner/broadcaster than ever before. The outside world is spinning in the numbers, $1.6bn, is it over or undervalued? How do you value a social media site?

Having been grounded in post-bubble survival for several years, I had got used to valuations around the small millions. I'm not afraid to admit that at the time I thought MySpace was expensive at $580m just twelve months ago. Of course, the sale by Fox Interactive Media of MySpace and other Fox properties site search to Google ($1bn) suddenly makes the price tag seem small.

So has the world of web 2.0 and social media suddenly reached a new level of valuation?
I'm reading Car Haacke's Frenzy right now, and he makes an interesting point:

"Tying nvestment evaluations to another person's actions, no matter how expert, has proven dangerous unless one knows a lot about what lies behind that decision - especially how the person approaches risk."


"When a large company made an acquisition or launched a new initiative based to some degree on the insight of outside experts, other watchful investors took this investment decision of further proof of the viability of the venture."


Actually, News Corporation and Google's reasons for buying MySpace and YouTube respectively are quite different than a VC or a public-market valuation:

1. They are 'taking out' a competitive threat to the rest of their existing
business
2. They are purchasing a complimentary asset which can add value to other parts
of their business i.e. Fox Movies distributed and promoted via MySpace
3. They already have infrastructure and contacts to make the businesses even
bigger

So at face-value you see YouTube with 'zip-all' revenues and wonder over the price tag. To Google its 100m people who can take their email, use their maps and get exposed to multi-media contextual ads. Plus it's a major competitor pulled into the fold.

What these corporate deals don't add up to is that DailyMotion.com, Grouper.com or RooTV are each worth billions. But according to Haacke, and every bubble before, we can expect all similar companies to command these one-off valuations. And that's inflating the bubble.

Real value is in the eye of the beholder.

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