Social Network Valuations

And the Universe Implodes...

As one of the founders of a money making company (small revenues admittedly) and a huge pipeline of new sites and technologies and a constantly growing traffic base, I'm amazed at the valuations that companies in the Social Networking space command. Frankly, I wouldn't want to be the guy left holding the bag when companies like Facebook, Bebo and Twitter need to pay the piper so to speak and actually start making money and generating an ROI for whoever ends up owning their stock, never mind having to justify their valuations.

Take today for example, I read that Facebook and Twitter agreed on a $500 million dollar valuation. Now lets be clear here, that's FIVE HUNDRED MILLION DOLLARS! And how much money does Twitter make? NONE! Quote from Wikipedia:

About USD 57 million of Twitter is owned by venture capitalists. Williams raised about USD 22 million in venture capital. Twitter is backed by Union Square Ventures, Digital Garage, Spark Capital, and Bezos Expeditions (led by Jeff Bezos of Amazon). Institutional Venture Partners and Benchmark Capital backed Twitter in 2009, investing an additional USD 35 million.The Industry Standard has pointed to its lack of revenue as limiting its long-term viability. As of January 2009, the service sold no advertising and produced no revenue. On February 13, 2009, Twitter announced on their official blog that they closed a third round of funding in which they secured more than USD 35 million.

*http://en.wikipedia.org/wiki/Twitter#Finances

Here we are in the midst of the biggest economic crisis of the last 100 years with corporations like GM close to bankruptcy, AIG direct needing BILLOINS of dollars of bailout money and both of those corporations earn billions of dollars a year! I shouldn't even need to point out the millions of people losing their jobs. It's been difficult if not impossible for money making companies to weather the recession, many going bankrupt or just disappearing into the night.

And here you have Twitter, a company that admits to no revenues, no revenue model yet they're pegging a $500,000,000 dollar valuation. And who do they propose to consummate this fiscal relationship? None other than Facebook, the other biggest money pit of the Social Networking industry! I'll close with a quote from Zuckerberg:

In October 2008, Zuckerberg said "I don't think social networks can be monetized in the same way that search did. ... In three years from now we have to figure out what the optimum model is. But that is not our primary focus today."