The huge leap to multibillion-dollar valuations for Facebook and Groupon in the past weeks has led to a rash of warning that we’re entering a bubble, one that may end as badly as the dot-com bubble did back at the start of the last decade.
“With Billion-Dollar Dot-com Valuations Back in a Big Way, It’s Time for Alarm Bells to Start Ringing. Anyone?” reads the header to an article in AdAge.
Tech Observer can’t go to a party these days without a grizzled vet of the dot-com days talking about how much the current atmosphere reminds them of the go-go 90s.
But there are a lot of important differences between then and now. First off, neither Facebook nor Groupon has gone public. So even if the bubble were to burst, it wouldn’t have nearly the same far-reaching impact on the economy.
Secondly, as John Battelle points out, these companies both have hundreds of millions of dollars in revenue and strong operating profits. No pie in the sky clicks and mortar promises here.
Brad Burnham of Union Square Ventures says tech investors have learned a lot since the first boom in web companies. “Back then people believed in “the internet”. They didn’t quite know what businesses would work and which would flop. Since then, obviously, the industry has matured.”
A decade later, e-commerce is a vibrant reality. Cyber Monday broke a billion dollars for the first time this year.
“This is not to say that marginal companies won’t attempt to go public in coming years, or that there won’t be flameouts and losers over time. There always are,” concludes Battelle. “But compared to the late 1990s, the companies lining up to offer themselves to the public look healthy, well positioned, and very, very real.”