Actually, There Is No Bubble In Tech


Photo: Andrew

Five years ago, peo­ple wor­ried that the acqui­si­tion of YouTube by Google for a stag­ger­ing 1.65 bil­lion dol­lars was the first sign of a bub­ble inflat­ing.At the time, I looked at the M&A activ­i­ties and showed that the YouTube deal appeared to be an outlier.

This year, wor­ries are pop­ping up again, this time due to the kind of val­u­a­tions many of the lead­ers in the space are get­ting.

As my friends Jon Bat­telle and Fred Wil­son point out, there is a sub­stan­tial gap between what hap­pened dur­ing the dot­com era and what is hap­pen­ing today.

As some­one who believed the same thing, I decided to do a lit­tle research to get a sense of what val­u­a­tion, rev­enue lines, and user base looked like.

I did research on Google to get the val­u­a­tion, rev­enue, and num­ber of users of the most talked about com­pa­nies. And it looked like this:


The first thing that becomes appar­ent here is that, out­side of Twit­ter and Foursquare, we’re deal­ing with com­pa­nies with strong rev­enue flows. But does that jus­tify their val­u­a­tion? Let’s take the data and look at what else we can learn from it:


All and all, the val­u­a­tion them­selves actu­ally look quite low when you look at them through the lens of rev­enue (once again, I’m mak­ing excep­tion here for Twit­ter and Foursquare, which are both still work­ing on devel­op­ing their rev­enue mod­els — and I hear that the cur­rent val­u­a­tion of Twit­ter in this round is depen­dent on their pub­lish­ing a rev­enue model).

The other thing to look at is poten­tial. GroupOn has out­stand­ing rev­enue per user (more than twice the amount that Google gets for its users) so it seems that its abil­ity to get more users would allow it to become as big, if not big­ger than Google if it can main­tain this aver­age. Face­book, on the other hand, has a lot of growth oppor­tu­nity in its aver­age rev­enue per user. As one of the largest inter­net com­pa­nies in the world, even some­thing as sim­ple as a cou­ple of extra dol­lars in aver­age rev­enue per user could gen­er­ate bil­lions in extra revenue.

But how do those com­pare to exist­ing pub­licly traded inter­net com­pa­nies. Thank­fully, some of that data is avail­able (Apple data is here):


So is there a bub­ble? I would say that if those com­pa­nies are rep­re­sen­ta­tive of the rest of the indus­try, there isn’t.

This article originally appeared on

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