We haven’t broken this out in a while, but based on observations by a couple of notable techies, we’ll say it: The Fear is back.

First, some preliminaries. The NASDAQ had its worst one-day drop in years. Unemployment hit five percent.

Google dropped 4.13 percent to $657 per share. Intel received a downgrade from JPMorgan.

Not good. It gets worse. Mashable editor Adam Ostrow noted the first three days of 2008 have been the worst start for the Dow Jones Industrial Average since 1932, in the middle of the Great Depression. The Dow fell 256.54 today, to 12,800.18.

Feeling The Fear yet? Greg Linden might think you should. He has one prediction for 2008, and it’s not a pretty one:

We will see a dot-com crash in 2008. It will be more prolonged and deeper than the crash of 2000.

The crash will be driven by a recession and prolonged slow growth in the US.

Linden also thinks online advertising will go flat at best, or even decline. Google and Yahoo will suffer, and ads driven by spyware and malware will return in a big way, all over the Internet.

We’re going to hope Linden’s off the mark with his prediction. But the start of 2008 looks as joyless as an emo kid’s Live Journal at the moment.

Publicis, an advertising corporation with 251 offices in 81 countries, is well-connected in this arena; its chairman and CEO, Maurice Lévy, is presumably well-informed.  So when he said, “Far too many people are building plans based on advertising, and they may well be disappointed because there is not enough money for everyone,” there’s reason to listen up.

According to Andrew Edgecliffe-Johnson, Lévy continued, “It’s exactly the same situation as we saw at the end of the 1990s, when everyone thought that because he had a website he’d get the valuation.  Now everyone building a Web 2.0 operation believes he will receive the advertising.”

All of this isn’t to say that people who depend on Internet advertising is doomed – a number of companies did survive the bursting of the first bubble.  Still, from Lévy’s perspective, things don’t look very positive.

Meanwhile, Google’s stock is down about $80 from its opening price on Thursday.

If you blindly accept the generalization that Internet investments are “a bubble,” you’re being had.

From David Henry, USA Today:

The bull market money machine has been running so long that you no longer hear much from those who say it has to stop. “Most of the naysayers have been discredited and are on the run,” says Jim Bianco

Chet Dembeck comments:

I believe the IPO bubble is not in danger of bursting anytime soon. In fact, I don’t think it’s even reached its peak inflation

David Gardner writes:

It is ALL THE RAGE to say that the Internet stocks are insanely overpriced, a “bubble,” or at the very least, way ahead of themselves. In fact, that herdlike conventional Wisdom is exactly what enables Rule-Breaking Fools like us to make good money on the markets.

From Business Week’s Christopher Farrell:

… simply wagging a finger at the excesses misses a fundamental point about emerging markets and Net startups. In both cases, we’re talking about frontier economies with few rules or traditional guideposts. It’s a Wild West where no one really knows what will work and what won’t.

Joelle Tessler in the Wall Street Journal.

Looking at the smaller, more speculative names, Steve Harmon … said these companies “have been given a chance to prove themselves in the Internet space” – and now must do just that.

“They were undiscovered and now they are discovered,” he said. “Now they have to produce the goods. … People are expecting a happy ending.”

I should probably add that these quotes were picked very selectively. And that they’re all from the years 1998 and 1999.

Comments

Well, all right – “before,” in this case, only includes the period from 2001 to the present – the index of wages with which we’re working doesn’t reach back any further.  Still, things are supposedly going quite well for workers in the tech field.

“[W]ages rose at varying levels during the third quarter, but showed significant improvement from 2006,” according to Yoh, a staffing agency.  “The Yoh Index of Technology Wages reported a 6 percent increase in July, followed by 4.64 percent growth in August, and then ended with a 5.79 percent improvement in September, when compared to the same months in 2006.”

Congratulations may be in order – tech guys can practically work miracles, as far as I’m concerned, so their pay is well deserved.  On the other hand, these wages could be yet another sign of a bubble.

Meh.  For the time being, I’m content so long as those Porsches continue to act as eye candy.

This morning on Twitter, at about 5 a.m. California time (he must be excited to be Tweeting that early), Arrington says:

"I have a feeling some CNET news is coming today."

Foreshadowing or stating the obvious? As pointless as many people think Twitter is, and as innocuous as the Tweets there can be (announcements of "eating lunch" or "getting on a plane" are common), this statement strikes as a loaded one.

So, either there’s news coming out on CNET like everyday, or something specific regarding Arrington and/or TechCrunch. A buyout?  

UPDATE: I may have jumped the gun. A recent post at TechCrunch says CNet is sitting on a lot of cash, so there may be a stock buyback, which isn’t nearly as exciting as what I thought.

Insiders Say Market Is Bullish, Not Bubbly

When I was in Japan, I was told not to translate yen into dollars – it would only make me angry at the price of everything. Maybe that’s the type of rationality we need here, as comparing company valuations and revenues will drive you batty.

Don’t, for example, look at these numbers and balk:

Facebook, if moderately bubbly, is worth $15 billion, roughly half the value of Yahoo, with 32 times less revenue. If out-of-your-mind bubbly, Facebook is worth $100 billion, half the value of Google (and possibly a Google killer – if such a thing could exist), which is worth more than IBM, which pulls in eight times the revenue of Google.

And that makes MySpace, with a large nation’s worth of membership and soon-to-be open platform, worth how much? More than $580 million, for sure…as much as Google?

It’s hard to argue that Google isn’t worth it – well, maybe not the $14 trillion suggested in some circles. Google is in position to bust more than a few lucrative blocks, encroaching on the turfs of the AT&Ts and Verizons of the world.

But a website with questionable revenue and no immediate plans to file an IPO, much less the ability to take over the known world like Google is doing?

Don’t answer that. Too speculative.

The valuations, some say, are based more on low overhead and valuable audiences rather than revenue. Reaching those audiences, especially younger ones, at little cost, is what drives the inflation…er, not inflation…value.

"From an advertising perspective, brand budgets are increasing every year and new platforms are rapidly emerging to reach the young demographic that can’t be reached through conventional channels," said Chris Redlitz, vice president of sales and marketing for Skyrider, a P2P monetization startup. 

"Blogs, social networks, mobile, gaming, video and peer to peer networks are new channels that reach the Gen Y demographic, and this is generating a significant amount of investment."

Redlitz joins a rather loud chorus of people saying this isn’t 1999 all over again, that this time it’s different. A critic is quick to note that this like when an addict denies his denial, or a teenager swears it’s a love that lasts forever. Nevertheless, the players move ahead.

"I don’t think this is a bubble," agrees Andy Beal, editor of Marketing Pilgrim. "In 1999, companies were throwing around money they didn’t really have. Likewise, IPOs seemed to happen every day, with some wild valuations. This time around, there are solid companies making the deals, giving us a solid platform for continued increased value."

Both assessments are matched even by the mayor of Mountain View, Laura Macias, who presides over the heart of the madness where hundreds of tech startups have opened up shop just down the road from the Googleplex. On Tuesday, Macias confirmed that the climate is different this time around, saying there’s "more substance to [these companies'] products."

And maybe so. Maybe 1999 really was the teenage romance that went kaput as soon as college began and the real world settled around us. Maybe (though it’s hard not to doubt) this is the mature romance we learn to have later (shh, no cracks about the divorce rate, ok?).

The only thing that settles it is time – or a harsh morning sobriety – but until then, Silicon Valley parties on.   
 

Facebook Bubble Cult Pushes Value To $100 Billion

Well, Jason Calacanis calls it "full-blown madness," but I like the drama of cultish mass delirium better – it brings up imagery of frothy mouths, rolled back eyes, and bacon-frying twitchiness.

Reporting from the Graphing Social Patterns conference, for developers and marketers looking to better utilize the Facebook open platform, Calacanis says a panel of fans and investors valued Facebook at $100 billion and predicted the annihilation of Google and MySpace at the hands of Mark Zuckerberg.

And some of us thought $8 billion and $15 billion were steep valuations. Under the same math, Calacanis says that makes Google worth about $14 trillion. Is there even that much money in the world?

There were other claims made, but these are enough to make you dizzy, or go mad. "[T]his is the kind of madness that got us in trouble the last time around (i.e. 1999)," says Calacanis.

If you believe all that, I’ve got a novel I haven’t finished writing yet that’s guaranteed to sell 3 billion copies – yes, half the world will read it and I’ll never have to work again.

If Facebook, with half the traffic and a third of the pageviews of rival MySpace, has reached such heights by opening up its platform to developers, what happens when MySpace does the same?

Or maybe, if Microsoft’s Steve Ballmer was erroneous in his "faddish" assessment of Facebook, then Rupert Murdoch must be stupid? News flash: Murdoch has proved, whether you like him or not, that he is the best at playing this game.

And as for the annihilation of Google…well, we’ve heard that before from more than a few much larger and more successful online properties than Facebook.

For charts and graphs and more madness, check out Calacanis’s lengthy post.

Values And Egos Inflate: The Bubble Returns

Bubble. There, I said it. Just two years ago, a half-billion dollars for MySpace seemed a bit on the frivolous side. But now it’s obvious News Corp. got in on something before the rest of the media world caught on, especially as Facebook, with a fraction of the audience, demands a steeper and steeper price.

But, say supporters of these valuations, it’s not just the size of the audience or the annual revenue taken into account, but the margins of profit they bring in. Online properties, especially Web 2.0 properties, are so low-cost to run compared to brick-and-mortar one that it’s not unreasonable for them to sell for as much as 100 times earnings. 

Critics were blisteringly quick to point out Henry Blodget’s unpardonably sinful Wall Street history of inflating values just before the dotcom bust – the term "gasbag" came up in one place, in lieu of bubble. Blodget argued Tuesday that Google shares could hit $2,000 one day.

This number, even as we remember the flack analyst Jim Cramer got flack for suggesting GOOG might reach $800, earned no shortage of scorn (and attention); TechCrunch’s Michael Arrington called for Blodget to be "muzzled."

In an ironic twist, Douglas McIntyre, editor of 24/7 Wall Street crunched numbers suggesting blogs like TechCrunch and The HuffingtonPost were worth upwards of $100 million to outfits like CNet or the Washington Post, as big media organizations look to find less expensive ways to build a loyal, sustainable audience.

Blodget concurred with that valuation; Arrington decided Blodget shouldn’t be muzzled after all; and Howard Lindzon, creator of CBS-owned Wallstrip, thought it quite funny "the lamest asshat on the internet" (he means Arrington) was buying into the hype.

Potshots aside, are we or are we not looking at (or standing within) the next dotcom bubble. If so, will it burst?

Lindzon seems to have his umbrella ready. "We just started another bust in real estate," he tells WebProNews. "This is another side book and may not end until the China Olympics. Obviously the global new wealth is not as sophisticated about the dangers of asset bubbles and it will be especially ugly when it ends."

Cynthia Brumfield, president of Emerging Media Dynamics, Inc., seems to agree these valuations are bubblish, but that’s not necessarily a bad thing.

"I do think these valuations are over-the-top but I don’t think a ‘bust’ is imminent," she said. "For one thing, Facebook and Huffington Post are privately held companies and individual and institutional investors in general will probably be spared the rude smack of any ultimate come-down in value. 

"They might feel a trickle-down effect in the sense that Microsoft, for example, might have to write-off some portion of its investment in Facebook, but that loss will be blended into a very big company. As for Google, investors are already forewarned that it might be overvalued even at today’s prices, and that doesn’t seem to spark much fear."

Even then, eBay’s not so happy about the $2.4 billion they shelled out for Skype – and they were warned rather loudly then. How many overpriced purchases can the major players afford to make?

The answer to that may be relatively simple. There is an echo of Brumfield’s assertion that the Microsofts and eBays of the world can afford to overpay in the words of McIntyre. They can afford it because the cost of running Web 2.0 companies is virtually nil.

"We know that Huffington raised $10 million from Softbank and other VCs," said McIntyre. "With the election year about to begin, Huffington’s pageviews, advertising, and value are only going to rise. Is $100 million the right number? No one knows that, but I think $75 to $150 [million] is not even close to wild, especially given the strategic value that a strong online brand could have for a company like the Washington Post."

An online property bringing $1 million annually, for example, could pull in 100 times revenue because of the relative low cost of operation.

"What people don’t want to look at is the value of these brands and how inexpensive they are to run compared to traditional media. The margin leverage is tremendous."

“Free” and “premium services” don’t usually go together (in reality, even if press releases promise the world), but in this case, Yahoo and Telecom NZ might deliver.  Users of Bubble will receive “a personalised home page with best of breed email storage, online photo storage and sharing with Flickr Pro, a 1GB online briefcase, and to launch shortly an all-in-one free security suite featuring Norton AntiVirus,” according to a release.

As for why Telecom and Yahoo are being so friendly . . . this appears to be a simple (read: not nefarious) plan to draw in fresh users and make the current ones happy.  “We expect strong uptake from both existing and new customers,” explained Adrian Littlewood on behalf of Telecom.  “The service will act as a compelling differentiator and a great reason for customers to be with Telecom.”

From way over in America, I’d tend to agree.  Potential users who are much closer seem to think so, as well; Linka (“for new zealanders by new zealanders”) made note of both the impending release and its “awesome features.”

Hat tip to Geekzone, and a questioning look to whoever came up with Yahoo!Xtra Bubble’s name.

Whispers of the last dot-com crash have begun to surface again.

The rapid fire purchasing of ad networks by Yahoo, Microsoft, and Google, whose DoubleClick deal is still pending, now looks like a harbinger of advertising revenue to come.

It’s all about the network, and grabbing more slices of an advertising pie that used to be doled out in mammoth portions to the biggest names on the Internet. While Google will probably continue to enjoy its slice with ice cream and chocolate sauce, the competition became a little hungrier.

The New York Post suggested that advertisers are sharing the wealth with the Facebooks and MySpaces of the world. Advertisers have been shopping around for better deals.

Targeting niches looks like the strategy of choice.

Paying to hit a demographic that should outperform the general population in conversions earns a much better return on investment.

Networks and others that can offer those niches can profit at a discount from what an ad on the front of AOL or CNet might cost.

But Silicon Alley Insider hinted the downturn may hit those smaller sites, just as it has the larger ones:

The situation is also reminiscent of the late 90s, when freely flowing venture capital created so much online inventory so fast that prices collapsed, driving a whole generation of start-ups out of business. The problem now is not VC money; it’s the ease with which new online media businesses can be established.

A larger Internet userbase, more broadband connectivity, and heavier online usage in general may offset such a decline.

It makes for an interesting wait for third quarter numbers from the big online players to arrive.