... what's remarkable is the money that people familiar with the matter say frames the discussions with at least some potential suitors: an estimated valuation in the neighborhood of $8 billion to $10 billion. This for a company that, people familiar with the matter said, had 2010 revenue of $45 million but lost money as it spent on hiring and data centers and estimates its revenue this year at between $100 million and $110 million.
So Twitter took in $45 million last year (from companies advertising on their site) but it cost more than that to run their computers. Where does the $8 billion come from then? Twitter, like Google and Facebook, seems to provide me with excellent services in return for absolutely nothing from me. How do they make up the cost of running the computers that do all this for me? Volume?
I recently switched from Internet Explorer to the Google Chrome browser. Google provides this browser for free. With a few more clicks, I installed AdBlock as well. AdBlock, also free, effectively blocks all ads on Google, Facebook, Twitter and practically everywhere else. It's great! So here is Google, providing me with free tools to avoid the only hope that Google has to make money off me. Estimates of how much Google is worth? 100 billion? Beats me.
Facebook makes money on ads too, or supposedly will some time in the future. Even before I installed Chrome and blocked all ads, I can't recall ever seeing an ad on Facebook. I think they are off on the side somewhere, but I certainly never clicked on one. I don't even think their presence registered in my brain. I recently saw a discussion on the Bloomberg business cable channel about Facebook. The analysts were raving about it, saying how it is going to revolutionize marketing. They were estimating a worth of $50 billion or more. In their vision, Facebook users will network with their friends to rate and recommend products targeted to them. Who is going to bother? Why? Is that why people use Facebook? So they can tell their friends how much they like Jiffy Pop?
Then there is Groupon. Groupon started in November 2008, and expects to have a $15 billion IPO this year. It is said to be the fastest growing company ever, going from a value of zero to a billion in about a year. At least Groupon has a kind of product. Essentially, you get an email every day offering you a coupon for a deal at a local business. If enough people commit to the deal, the business is bound to it. If not, then the deal is off. I don't really see why this appeals to businesses. Is there some economy of scale where only if a certain number of people want, say, 50% off a haircut, is it worth it to offer? Or are businesses hoping most wont bother to redeem the coupon? I don't get it. Anyway, I signed up for this a month or two ago. After a couple of weeks I cancelled it. I just wasn't interested in the items they were offering at a discount. Half off a dinner at a restaurant I've never heard of. Twenty percent off a ticket to a band I don't like. When you think about it, what are the chances that a random coupon offered to you is going to be something you are interested in having? There are millions of products out there, of which I purchase I tiny, tiny fraction.
Are these businesses really worth this much? Is this all some sort of bizarre market bubble/speculation phenomenon? A modern-day Tulip mania? Maybe if I were a budding billionaire I would understand.