Christmas came early to the technology business this year.
Three of its most prominent new companies are seeing their valuations soar. Dropbox is said to be pushing an $8 billion valuation as it raises some $250 million. Snapchat reportedly just passed on a $3 billion acquisition offer from Facebook. And Pinterest just raised $225 million on a $3.8 billion valuation. That doesn’t even count Twitter’s successful public offering this month.
A lot of people wonder if any of these companies are worth the money. After all, Snapchat doesn’t even make any. It doesn’t matter. Beauty isn’t skin deep, but it is in the eye of the beholder. Valuation is no different. If someone wants to pay, nothing else matters.
The better question is whether the era of eye-popping media-tech valuations will last forever.
In other words, will valuable new companies keep emerging every few years or is this age destined to be replaced by a more temperate time of harder work and fewer enthusiasms?
You really have to hope not. Temperance is boring. Valuations are soaring because it’s exciting to think someone’s onto the next big thing — and that you can be part of it. And why not? It’s a lot more fun to dream big than live a quiet life of desperation.
Still, it’s hard not to think about a big swirl of cotton candy at a crowded state fair when considering all these hugely valuable media-tech companies. That’s because most of them seem to offer just one trick at a time. Take Facebook.
Its best skill is still connecting people across photos, and, maybe, newsfeed posts. It’s tried to offer a software infrastructure that people can use to build their own software products and services. But that’s never fully panned out. As a result, it’s been acquiring next-generation software companies, such as Parse and Onavo, this year. Yet some signs suggest the strategy still isn’t working. A report surfaced this week that Facebook is becoming aggressive about convincing software developers to use some of these newly acquired software technologies.
Why are they resisting? Because the developers don’t need them. Media-tech’s recent successes — and huge valuations — have spurred so much competition that Facebook can’t offer them much that they can’t get elsewhere, probably with fewer strings. In other words, software technology is being commoditized almost as fast as it’s being created.
And therein lies the answer to the question about the future of media-tech’s value.
This era’s success will probably make it a temporary one. So many people’s dreams are tied up with these technologies that it’s almost impossible to use them in a way that isn’t quickly copied, cloned, or reinvented.
Dropbox is a good example. It’s built on top of Amazon’s Web services division, an Internet-based server farm that anyone can use to build and run their own software more quickly and easily than ever. That means they could copy Dropbox’s file-storage capabilities fairly easily. Or they could copy them using an Amazon Web Services clone, such as one offered by Microsoft, VMware, Rackspace, or a growing variety of other providers.
Some say companies like Dropbox have too much “scale” in terms of customers to be challenged.
Maybe. Or it may mean that their products are so easy to replicate that these companies need huge numbers of users to survive. In other words, Dropbox may be worth $8 billion today. But that doesn’t mean the market will think the next crop of media-tech start-ups will be tomorrow.
(Disclosure: James Abels runs a start-up working on new ways to design and deliver media.)