Facebook, MySpace investors must remember Yahoo in 2000

In 2000, the assumption was that Yahoo could capture up to 20% of off line ad dollars within 10 years. Remember Yahoo was valued at around $90 billion at the time? Guess what folks - nothing is completely defensible and least not when it comes to internet destination sites or electronic ad networks. There is no border, there is very little cost to build, and absolutely no end to the upper limit of the supply of internet "space" for content, commerce and advertisements. The only real border or limit that matters is the population of the people consuming the advertising and the return, or lack thereof, on those ad dollars.

Main stream media reporters will keep cheer leading around the idea that Facebook is worth $15 billion or Myspace is worth $65 billion. Entrepreneurs and VCs will continue to conclude correctly that 1) this (media and advertising evolution) is a big and rapidly changing market and 2) the cost of the option* is pretty cheap. When the data comes out in 2009 that 8 out of 10 startup media or ad companies launched between 2006 and 2008 failed, don't be surprised at main stream media when they run stories about how carried away everyone was. Sure, they will run a piece on someone who was publishing gloom and doom too. What they want publish is an analysis of their own collective work showing the lack of critical and independent thinking.

*The option here is that you can build a media company or ad network that has a shot at any meaningful piece of the growing pie.

Peter Thiel of Facebook to CNBC: "People are one of the most important things in the world."

Video clip link:

CNBC asks Peter Thiel is explain the end game for social networking.

Here is the story: CNBC had been hyping having Peter Thiel on as a guest in San Francisco. I have never met Peter. I do have some common friends and was naturally interested to see and listen about why he had been invited to one of my friend's party and why CNBC wanted to interview him. With all due respect for Peter, I was disappointed. Aside from the fact that his answers were peppered with "umms" and pauses, there really was little to no substance. There is nothing that I know now that I did not know before watching the interview except that Peter thinks that "People are one of the most important things in the world." This was his answer to the question "Is social networking a fad?"

Another comment I might tag as "curious" if not "questionable" was Peter Thiel's assertion that valuations for companies that produce "social networking" services are, in the aggregate, not too high to provide an attractive risk adjusted payoff for investors. Bill Griffith asked Peter Thiel if there is a bubble in the market for web 2.0 and social networking companies. Notes, his line of questioning was: ‘is social networking a fad?’ and ‘what is the next Google?’. In response, Peter Thiel uttered “Facebook” although Griffith had not asked about any specific companies, then he offered four reasons why there is not a bubble as it relates to [private venture equity capital] investments companies that offer web 2.0 and social networking services. Peter Thiel said [this is not from a transcript, just my notes from the interview and my sarcastic comments are in [bracktets]]:

1) There are "no IPOs" for these companies. [Did you know bubbles are defined by whether or not the public can invest directly instead of indirectly? I did not.]

2. MBAs are going to private equity not coming to Silicon Valley [Mr. Thiel added, and I am not making this up, that ‘this was what was going on a year ago’. So his reasons are not even forward looking, they are backward looking, and at least a year old. This one is too easy. No, MBAs are not coming to Silicon Valley, they are dropping out of undergrad and moving to Silicon Valley - they don't have time for an MBA when there is also this tagging and networking and mashing up to do! : ) ]

3. And this was perhaps the most interesting reason why valuations are supposedly not too high: "...it takes far less cash to get these companies off the ground". [Peter Thiel is such a genius that people like you and me can not even follow his logic.]

4. People in the late 90s were swapping out old economy investments for new economy investments. [Well, that was true...therefore your little widget code must be worth $5M pre, right?]

I have an economic interest in the web content economy as do many people that I care about. Peter made a reference to the importance of enabling human communication globally and that was appropriate. Much of the rest sounded like cheerleading and the explanations were not exactly what I would expect from someone who is probably Mensa material. Facebook is obviously thinking IPO. If publishers like Anthony Noto or Mary Meeker are going to explain Facebook to the likes of Bill Miller or Will Danoff, I guarantee that these will not be the four bullet points they use to justify the valuation. Fidelity is a "build it" shop, so they probably won't let Noto or Meeker "poke" or "nudge" or "wink" at Danoff or the other managers using Facebook when the initiation report is ready.