As lot of people are saying that, but the empirical evidence suggests that the valuations, as high as they are, are remarkably sticky. I can only name two web 2.0 duds, zynga and fab, but the rest of the unicorns have either held their value or keep rising. It's not like Uber or Snapchat will become the next friendster and myspace. The failure rate for the $40-90 million valuation range seems much higher than the >$1 billion.
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Plenty of once-highflying companies from the 2004-2007 vintage exited in down-rounds. Loopt. Xobni. Slide. Digg. Valuations were, in general, less than they are today, and the term "unicorn" hadn't been coined, but these were still companies that were valued at several hundred million at their peak and then sold for 10-50 cents on the dollar.
It's easy for valuations to keep rising in a bull market - that's sort of the definition of a bull market. The big question is how many of those companies stick around when the tide goes out. Historically, bear markets result in a consolidation around a few winners that have managed their cash well and stayed ultra-focused on growth, but they also result in the death of everyone who hasn't been capital-efficient. Their places are taken by "sleeper" hits (remember, AirBnB was started in 2006, but they didn't close their A-round until 2009) that raise at a much lower valuation but have done the work to get true product/market fit.
Groupon comes to mind as another one, relevant to the propped-up-by-ad-spend part of this story. They IPO'd at a valuation of $12.7 billion in 2011, and have since lost about 2/3 of that market value. However as a post-IPO loss of market value it doesn't implicate the same sorts of things described in this article.
Poor market bet imo, Groupon is great at what it does no matter valuation. I would be very sad seeing it to run in serious issues due to its dropping valuation.
Zynga is still worth $2.6B so I would not call them a "dud".
They might not be staring death in the face, but you'd call it a dud if you'd bought it at the "unicorn" valuation of $11.5Bn. Given Zynga is losing money not trying to grow so much as reinvent themselves to keep up with their users' short attention spans, I'd be much happier being short on them than long too.
Though FWIW, I think Zynga's performance is probably better than Snapchat will do long term, since they at least nailed the art of generating revenue.
Mind you, I've never used it, but Snapchat has 100 Million monthly uniques.
I can't think of a single company who has reached a critical-mass consumer audience and not been able to monetize. Sure, winds change, MySpaces rise and fall, but it wasn't a monetization failure.
Anecdotally, just a month ago I was walking and because i live in San Francisco I happened across a corner (Howard and New Montgomery) where there were ~20 girls about 13 years old being polled about their tastes, and the questions I heard waiting for my light was "Do you guys like smartphones?" ("yes", duh), "Is your phone more important than your TV?" ("yes", duh), and "What is your favorite app?" and the answer was unanimously Snapchat.
Snapchat is the teenagers answer to the question many millennials have fretted about -- "how will ppl born today deal with having all 18 years of their development online". The answer is: they don't put it online. It's peer-to-peer and temporary by social contract, even if the technology is imperfect.
So far, snapchat has played a savvy game. As an engineer, if they were based in SF, I'd consider working for them. They have tapped into something. Because my 28 year old wife has also been hooked on Snapchat for what seems like a lifetime now. Her most frequent contacts? Both of her 60+ year old parents, numerous cousins and aunts, etc. Her dad uses it to send stupid pictures that you might not expect from a 65 year old white haired CEO-type whose work is about as far away from tech as you can get.
> I can't think of a single company who has reached a critical-mass consumer audience and not been able to monetize. Sure, winds change, MySpaces rise and fall, but it wasn't a monetization failure.
Twitter has been around for almost 10 years now, and while they have been able to monetize somewhat, they haven't been able to turn a profit, and they don't seem to make great progress in that direction.
It's not that they can't make money - it's just that so far, they haven't been able to make enough money to support the valuation.
Twitter had revenues of $1.4b in 2014 - for a tech company (i.e. low marginal cost of delivery), I would say that's enough to support a $24b valuation.
$1.4B revenue, with $0.577B loss, so, they spend $2B to bring in $1.4B; Not a good business.
We can't talk about a profit multiplier (Twitter has never had a single profitable quarter), but even if the $1.4B was all profit, a 17 P/E is not easilly supported.
In my opinion, Twitter has been a zombie for a while - there's no way they'll have enough profit to justify a >$10BN valuation, and that's only if they stumble on some revolutionary profit model. If they don't, even $2BN will be lucky.
Although what is likely to happen is that a stock market crisis will harm all companies, those with potential and those without. So Twitter will go down, "as if" for the wrong reasons, and the business model and its execution will not be found guilty (or not guilty).
> $1.4b in 2014 - for a tech company (i.e. low marginal cost of delivery)
You say this, but IIRC even with that revenue, Twitter hasn't been profitable, which is generally necessary for long-term viability. The "low marginal cost of delivery" hasn't materialized, if they can't turn a profit off of $1.4 billion.
Popular and sticky in a revenue generating sense are not always the same thing. Crocs were a huge hit. They sold a lot of sandals quickly.
I heard the exact same thing said about Youtube a few years ago. Can you name a software company that has had 100+ million users and failed?
MySpace and Orkut both had over 100M users and failed, but it was because of neglect by their corporate owners, not a failure to monetize. AOL made it to about 30M at their peak; they're down to about 2M now.
I agree with the general point of this thread (that once you get to 100M+ users, there will be a way to monetize), but if you're trying to make the stronger point that once a company gets to 100M+ users they're invulnerable, there are ample counterexamples.
[1] http://mashable.com/2009/04/16/one-million-ning-networks/
Having "100+ million users" is a relatively new concept, period. It shouldn't be surprising that very few, if any, have failed. But that doesn't tell us anything about the future.
Before Enron, how many companies with $100+ billion in revenues went bankrupt?
If you have no monetization strategy more users are a liability not an asset.
They've also lost $225 million in the last year. They have a $2.6B market cap but what does that mean if they still aren't making money?
Definitely. And that ignores the extent to which they may not be creating any value.
I think they're a "games company" only in the same sense that people who make shitty video poker machines are. That is, they're not creators of fun experiences, but parasites on those inclined to addiction.
Business is mainly about creating value for customers; companies that make money out proportion to the value created tend to get optimized away.
Twitter's also losing money, right? LinkedIn, despite all their tactics, makes double digit millions only? Splunk, at several billion valuation loses more and more money, too (enough that killing all R&D still wouldn't make them profitable).
Splunk's revenue chart looks great: https://ycharts.com/companies/SPLK/revenues_ttm
When you are still growing, the goal is to invest as much as you can in further growth. Taking profits just means you pay taxes.
The only problem with losing money is if it's not the result of increasing growth (which can later be turned into much bigger profits)
>> It's not like Uber or Snapchat will become the next friendster and myspace.
They may very well become that. At least in Snapchat's case, things can change very quickly.
I would actually bet on Uber to go there. Karma is a b.
On the flip (karma) side, as a non-driver, Uber has materially changed my life. I rank it up there with google maps, cell phones, and SMS/imessage/whatsapp in terms of its impact. I can click a button, and in most major cities, have transportation, often at a price less than taxies that would sometimes never show up, in less than 5 minutes. The transportation is safe, clean, and polite (something I would also not have ascribed to taxis in most cities.)
And that's before it gets into logistics.
You could get the same thing from Lyft, and not support an unethical company. Most users of Uber probably don't care though.
Yeah. I use Lyft rather than Uber, not to avoid supporting an unethical company, but because I don't want an unethical company tracking my movements.
What about Coca-Cola ? It sells sugar water to kids.
Who said anything about Coca Cola?
Why are you so sure Snapchat won't become the next MySpace?
Probably because he is user of it or his friends are.
When you use something a lot of your friends are talking about, you tend to think of it as universally used product.
Lots of people said things like this in 2000 too.