Are We in Another Internet Bubble?

By Gary Kim June 15, 2011

There seem to be about three major positions on whether we are "in another Internet bubble." Some people say valuations are generally reasonable and that the firms going public have actual revenue models. For them, there is no bubble.

Others think we are in a bubble, while a third group of people might say we are building towards a bubble, sort of at a 1995 point, with 2000 coming. 

LinkedIn’s 109 percent pop on its stock market debut shows investors are hungry for technology-style growth investments. But pegging firms by their revenue potential is risky. Profits matter in the end.

And there is no question that Investors in new-to-market Internet firms are certainly baking in lots of growth. Read more here.

"Across the board, valuations seem to be pinned on every company becoming a Google in its market," said Robert Cyran, Reuters columnist."But as became clear as the dot-com boom collapsed just over a decade ago, there are relatively few consistent winners."

Others think a bubble is building. "There is a massive bubble brewing and it is going to pop and pop big," said John Furrier, founder and CEO of SiliconAngle.com.

But some continue to insist we are not in a bubble. "Based on the current state of innovation, I'd argue that we are not in a tech bubble at this time," says  Richard MacManus, PBT Consulting owner.

Still, the evidence might be shifting towards a "bubble" analysis. Pandora Media, the online-radio company, gained on its first day of trading as investors raced to benefit from the biggest surge in internet share sales since the dot-com boom a decade ago. 

The Oakland, Calif., company leapt as much as 63 percent to $26 after its debut on the New York Stock Exchange.

While Pandora will compete with peers such as Sirius, however, it may face a bigger risk staying ahead of established technology companies including Apple, Amazon and Google, which are investing in their own online music offerings.

The question is whether Pandora can increase revenue enough to comfortably exceed its costs. Some users have started to complain that the service is already running too many ads.

Pandora has lost $92 million since 2000. Its annual loss shrank to $1.8 million last year from $16.8 million a year earlier as registered users topped 90 million. Royalty costs increased 21-fold since 2007 to $69.4 million last year, while revenue jumped to $137.8 million in the same period.

Pandora is among a dozen Internet companies to go public this year, the most in any year since the height of the first wave of Web IPOs in 2000.

Want to learn more about the latest in communications and technology? Then be sure to attend ITEXPO West 2011, taking place Sept. 13-15, 2011, in Austin, Texas. ITEXPO offers an educational program to help corporate decision makers select the right IP-based voice, video, fax and unified communications solutions to improve their operations. It's also where service providers learn how to profitably roll out the services their subscribers are clamoring for – and where resellers can learn about new growth opportunities. To register, click here.


Gary Kim is a contributing editor for TechZone360. To read more of Gary’s articles, please visit his columnist page.

Edited by Carrie Schmelkin

Contributing Editor

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