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.   
 

Skyrider has been under development for the past two years as P2P networks mature to include a more widespread Internet populace. Recently securing $8 million in funding from Sequoia Capital and Charles River Ventures, Skyrider’s leadership may sound familiar.

The founders of the company are Dr. Ori Cohen and Stas Khirman, who also founded Narus, which they are no longer with, the company that provides the notorious packet monitoring technology used by AT&T, the National Security Agency, and foreign nations. The president and CEO is Edward Kozel, formerly of Cisco Systems and current Yahoo! and Reuters board member. Heading up sales and marketing for the company is Chris Redlitz, who recently left Feedster.

The platform Skyrider has developed in P2P is intended to leverage the recent popularity of user-generated content, rather than copyrighted material that file-sharing networks are notorious for passing among themselves. Kozel told WebProNews that the focus on user-generated content would allow the company to “absolutely live within the Digital Millennium Copyright Act.”

The company cites recent studies to show that P2P activity makes up the majority of Internet use, or 75 percent of consumer Internet traffic. The company says P2P has the potential to become the dominant network architecture in the United States, especially as the economics of storage and distribution improve.

“The use of P2P networks is so widespread that now they are the dominant traffic on the Internet,” said Randy Ditzler, of Sequoia Capital a Skyrider Investor. “P2P networks are maturing and diversifying and the utilization of these networks has created some very compelling business opportunities. Skyrider is the first to focus on creating a platform and products to seize these business opportunities.”

The business opportunity is creating a targeted, contextual advertising platform this busy Internet back road, which includes search advertising with a pay-per-click and pay per impression model. Kozel and Redlitz would further elaborate on their advertising business model as the company’s first product is due out this fall.

The company syas Skyrider’s technology will allow the peer-to-peer environment and the web to coexist.

“The P2P audience is not going to be all that different than the Web audience,” said Kozel. Except maybe, it could be easier to keep the audience in one place. “Keyword-based search marketing will receive a tremendous boost by operating in the P2P space,” he said. “There are as many as tens of millions of unique users per day, conducting hundreds of millions of searches.”

Kozel explained that the P2P model, which distributes bandwidth among users on the network, was vastly less costly than systems that rely on central servers for storage and distribution.

“There will be an explosion of innovation in software and applications, once businesses can not only reach P2P users, but can utilize the decentralized, dynamic and community nature of P2P technology,” he said.

“This permits the network effect’ — which holds that the value of a network grows exponentially with the number of users — to be put back into the network; this will create significant new value for businesses and end users.”

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