http://idlewords.com/2015/11/the_advertising_bubble.htm
> I often wonder how much of Facebook's revenue (for example) consists of valley startups trying to micro-target indifferent consumers.
During the dot-com boom, a large fraction of Yahoo's revenue was coming from startups, who were using their VC money to pay exorbitant amounts for partnerships with Yahoo. You can guess what happened at Yahoo when the party ended in 2000 and the money men went back to NYC.
There's this great segment in eDreams where the founder of Kozmo.com flies to Seattle to announce a partnership with Starbucks, wherein Starbucks gave them a small amount of money, and they committed to paying Starbucks $30 million a year over five years to put their boxes in Starbucks' stores. Kozmo pitched this as an investment (personal aside: lol), and Starbucks announced that this would increase earnings by five cents a share for fiscal 2001 [1]. Kozmo was, of course, dead by early 2001.
It's painful to watch this now, but it really seems like the same things are happening again. The flow of money is just happening in real time, and not being projected forward on a five-year basis and booked as current revenue. (That happens at the unicorn stage instead, where we seem to have made up fun new ways of booking future recurring revenue as present-day revenue growth, and traditional accounting rules do not apply.)
Indeed, Starbucks pulled almost the exact same thing in 2012 with Square:
http://money.cnn.com/2015/10/15/technology/square-starbucks/
This partner overall sounds better for sbux.
Cisco for example, in the 4th quarter of 2000, grew sales by 61% (55% for the year). Famously they had basically accelerated growth every quarter for a couple of years. The projections had gotten almost insane, about how big Cisco was supposed to be in just a few more years.
The money quote from August 2000:
"We see no indications in the marketplace that the radical Internet business transformation in practices like customer service, supply-chain management, employee training, empowerment, and e-commerce that is taking place around the world today is slowing -- in fact, we believe it is accelerating globally," said [then CEO] Chambers.
0: http://finance.yahoo.com/echarts?s=FUEL+Interactive#%7B"rang...
WeWork is in my mind, a good example of a company that will suffer once their customer base burns through all of their VC money.
http://www.businessinsider.com/weworks-financial-projections...
For example, service discovery is still service discovery. You still have, say, a hundred machines running the listeners API. Are you going to keep a manual tally of that? Or better to just start consul client from the ansible/chef provisioner, and let "dns" handle the load balancing. You can implement "connection draining" by downing the health check url before going offline on a node. Just one example, but yea, there's a lot of ease and maturity in the new services way of doing things now.
Those big players spend so much money. If the funding river dried up then sure, sooner if there smaller ad-tech might be at risk, but the big dollars will stay put.
If "regional effects" follow a power law this isn't true. We know valuation does, so why not these effects?
who employees more people: FB or the countless "on the come" app cos /free-to-play game cos that are paying FB $10 per app install?
VC money is sucked up from around the US (via LP's as foundations, etc) and deposited in SF for use in Payroll for companies that are loosing money, and transfering VC money to FB, that inflates FB valuation, a valuation that VC's feed back into their models of expected returns on investment, there by increasing investment. In this way the positive feed back loop is completed.... and $3,500 per mo 1-Bedrooms are created as a side effect ;)
the payroll base of a profitable company is constrained by its real revenue.... the payroll base of an unprofitable company is not restrained by its revenue.
I am sure there are many unicorns that are overhyped and are going to fail. The 300Bn is same as market cap of Facebook. If one invested in every one of Unicorns at current market, I think its most likely they will make profit on the investment.
Don't forget everyone thought FB was Way over valued when MSFT invest at 15Bn valuation.
I often wonder how much of Facebook's revenue (for example) consists of valley startups trying to micro-target indifferent consumers. Pretty much any time I look into a VC-funded consumer company, I find that they're spending money on Facebook ads, Google ads, mobile ads...you name it. When that money dries up, the "ecosystem" of ad services takes a huge hit.
I'm sure there are consumer companies that have organic growth, but it's hard to tell when there's so much money sloshing around. One King's Lane, for example...they were buying ads like crazy. At their peak, they had big, unicorn-y revenue. They're probably going to sell for a fraction of their total investment, and have never been profitable [1].
Meanwhile, the theoretical market cap of all current private-market unicorns ($300-$500Bn, depending on the source) is something like 10-20x the market cap of every IPO issued in 2015 (~$30Bn) [2]. It's pretty clear that the economic status of San Francisco is at least correlated to the huge influx of VC money since 2012, and that a lot of the resulting value is creative storytelling. I don't see why people are so confident in a soft landing if that same money goes away.
[1] http://recode.net/2016/01/06/one-kings-lane-once-valued-at-9... [2] http://wolfstreet.com/2015/12/22/ipo-window-suddenly-closes-...