Saturday, 14 May 2011

Dot Com Bubble II

I am a dinsosaur. I freely admit it. In the heady days of Dot Com Bubble I, it was often said that old foggies didn't "get it", when they stared open mouthed at insane valuations. A decade after that, I still don't "get it". Can somebody explain to me the valuation of $ 8.5 bn for Skype, which Microsoft announced buying a couple of days back.

Skype  still makes no money after being around for a fair bit now. Make no mistake; its an excellent product - I am an unadulterated fan and user of Skype. Its just that most users, and there are millions of them,  use it for free and don't spend a nickel. Skype doesn't make a profit and there's nothing in sight as to how they might make one. A year and a half ago, Skype was sold for less than $ 3bn - what has happened in a year to almost triple that valuation ??

Or take Linked In - a so called business networking site that I abhor. At least it turns a profit. But its turnover is in the low millions. It has just filed for an IPO for a reputed valuation of some $ 3 bn. When you see sales multiples in the region of 10, you ought to do a double take.

The Skype acquisition has every hallmark of the lashings of an alpha male who has been deposed. The most charitable description of Microsoft is that it has lost its mojo. Nothing like a headline grabbing acuisition to try and rediscover it. Especially since it has tons of cash and doesn't know what to do with it.

Couple all this with the atics of Chinese intenet companies that are in unseemly haste to list in the US. And the jaw dropping valuation of Facebook  which I have alluded to before here. It appears Dot Com Bubble II is truly well and underway.

16 comments:

zeno said...

Ahem Ahem, I truly agree.

gils said...

skype takeover illa...athu hype takeover..imagine the kinda money tht wud be involved when hp takes over IBM or viceversa :D THAT i would call a real deal :)

Pranav said...

Personally, I don't understand how any company that makes a chat client makes any money at all. I recently stumbled across a few companies that have created chat modules for facebook fan pages. They're pretty wicked applications with a space for a banner ads that no one ever really sees so I am not sure how they plan on monetizing any of that.

And yes, what's with the lack of love for LinkedIn. I have to admit I only started using it recently. It's been great for doing homework on alumni while drafting letters to them asking for an informational interview. It helps have their background at your fingertips (captured on LinkedIn) to add better context to the e-mail and sound substantially less generic in the e-mail outreach.

rads said...

"The Skype acquisition has every hallmark of the lashings of an alpha male who has been deposed." ... LOL .. seriously?? $8.5 bn? actually i know a lot of ppl who used to use Skype have stopped using it nw, including me, there's nothing so very useful or special about it, the www will do well without it too..Microsoft's gone crazy...

Ramesh said...

@Zeno : When the incredibly read zeno agrees it must be a valid point of view.

@gils - Trust gils to come up with that brilliant one liner - Hype takeover. Gilsu you must be in journalism instead of arguing with your damager.

@Pranav - Why on earth would I want my general bio data to be published to the whole world. If I wanted to make contacts, there are much better ways of doing it. And in any case, the whole contacts thing is hugely overhyped.

@Rads - Yeah crazy - but to the guys in Redmond, in doesn't seem so.

zeno said...

ha ha I agree not only with the hyper valuation but also with the return of bubble.
Gils did disappoint me though! I was expecting something like, "Why 8.5 Billion when they could have downloaded it for free" [Disclosure: read it somewhere]

Sandhya Sriram said...

skype is an amazing networking solution and its now largely personal. if it need to start making money it needs to go corporate. stand alone it may never have the where with all but by being MS it gets there. now on valuation, if powerpoint were a stand alone company how much would you have valued it 10 years back. can u value it even today stand alone... but it is an integral part of a corporate offering and a great one indeed.

and it takes some gut to invest in a capability for the future beyond excel sheets and conservative accountants :-)

and whats a few billion dollars for a company Microsoft. even if this were considered as charity for their faithful users. I did not even read the valuation... as a user, i am thrilled by the acquisition and looking forward to the next version of Microsoft maybe V 2012 skype loaded!!

PS: Gils - Hype Take over and Damager -amazing pearls from Gilsopedia - these are to be written on stone for future generation to read and enjoy!!!!!

zeno said...

@Sandhya I am sorry, couldn't resist the temptation of replying to your comment!

1) Why is that it has to go corporate to earn personal?

2) Lotus 1-2-3 the spreadsheet thing did well to make money as a stand alone. If i am right, many MS office offerings were successful stand alone products which were making a killing until MS killed them all!

3)Definitely 8.5 is pocket change for MS, still the question is the pay worth for what you are getting?[The valuation may be right depending on how one sees it. a) By the IP they have acquired which could be used to sue others b) Potential to be integrated with Lync, added value to corporate users and more money there c) More personal customer base d)Considering the company could have been valued much higher in IPO, this is cheaper!

4)Above all as an end user, we all should be concerned by the MS. How can we expect for some good quality product from MS ;)? There are too many ways to botch up a good product and they as well might do it!

RamMmm said...

Haven't read the bloggerazzi on the whats and whys of the acquisition, but I am surprised more as to why Microsoft's own technology can't be used, if indeed they want to embed instant voice chatting etc into their leisure platforms. My company (and hence me) uses Microsoft Lync (formerly Microsoft Office Communicator) as the glue for everything voice related, which IMO is amazing and integrates beautifully with our existing VoIP system/MS-Office, but it is corporate focussed. If Skype's base is a baseline, how many of the freeloaders (me included. I've great respect for its voice quality and to an extent video as well) would want to use it on the monetization aspect. If it is the technology/patents, the distributed call servers/management et al (pardon the technology terms), it still looks like a weak case. Let me read more.

Vishal said...

Well, here is another one that beats me when it comes to websites, chat applications, audio-video calls and their profit mechanism. I hope to understand this entire dot com business some day. Still wonder how this entire system stands on a revenue of advertisements only. Like a true traditional businessman, I also think that the basis for valuation should be palpable and understandable... For lack of such rationale, definitely looks like a bubble, if nothing more than that.

Vishal said...

Having said that if MS has acquired skype at such a price, something has to be there... I do not know at all... :)

Ramesh said...

@Sandhya and zeno - Lovely debate. Merit in both points of view. Loving this interchange

@RamMmm - Ah - knew there is some flaw in you :) Microsoft bonded ?? Ugh !!

@Vishal - Yes, non hi tech folks like us frequently have to scratch our heads in bewilderment at the goings on in the reportedly "hi tech" industry.

hemarao said...

High valuation...but a great product, just like the fB ;-)
Yeah, wonder where they make their money? Sometime I think they are secretly storing a lot of hidden information about the users/netwroks and are making use of it to build some kind of an universal data base to hold the whole world at ransom some day.rr...

hemarao said...

The picture of the bubble is lovely!

Srivats said...

Is it the valuation takes into account the reachability or the usability of the product ? like how much users can be reached with a advertisement on skype

Ramesh said...

@Hema - Don't think so. There's no magic to making money. The valuations are all hype.

@Sri - No point putting an ad on Skype. Nobody would watch it, much less buy anything because of it.

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