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."

But Howard Lindzon, creator of Wallstrip, a video podcast that followed that minors-to-majors path by being picked up by CBS for a reported $5 million, suggests more manageable goals that are truer to audience needs.

Lindzon delivered the keynote address this morning at the 3rd Annual Podcast and New Media Expo in Ontario California.

The goal isn’t, he said, to take to your show to television, but to let people consume you show where they want. Television, in most cases, is the competition.

But whatever the idea, a person wanting to get into the New Media should enter with a goal in mind, whether it is to get to TV, or to make money from their content.

And just how is that done? Well, he can only speak from experience.

Noting that financial videos were not exactly, well, riveting, Lindzon took the opportunity to create a "Saturday Night Live for Wall Street." He raised about $600,000 and created his show, which looked at just one stock per day, for about three minutes.

How did he make his show stand out? "We embarrassed ourselves," he said, referring to the aggressive means he and his team used to promote the show. "You should put your stuff everywhere." Everywhere includes YouTube, iTunes, DailyMotion, et cetera.

The next step, he says, is good old fashion over-the-phone salesmanship to sell advertising.

Advertising, of course, caused some negative response. But, said Lindzon, "We have a business to run, and if it doesn’t intrude, why not?"

Lindzon said he preferred 2-3 second pre-roll spots and product placement over post-roll ads.

Overall though, a video podcaster needs to enter the game with the end-game in mind, knowing and seeing the goal ahead. And there is a distinct advantage of having your content as part of the New Media.

"Great thing about the Web and podcasts, you do another show tomorrow."

WebProNews video anchor Kara Ratliff contributed to this article.