In a thinly traded market this is basically what happens. Domain names provide a good comparison if you've followed that market at all in the past 15 years. The art market as well. In some cases blatent manipulation. You may be able to expirment yourself, identify a very rare set of collectibles, may be a comic book which rarely shows up for sale on eBay. Buy it every time. Hunt down all available copies of it. Eventually you will own all copies and the price history. Liquidating it all at a profit is a whole other event.
The danger zone for these valuations is what if the company doesn't really have something thats going to last? We assumed that with Facebook, because of all the social networks that came before. So far we are wrong. We assumed this would be the case with Zynga and so far were right. What if some of these software startups end up being more like games and less like things that stick around a long time?
Complicated subject. Lots of exceptions. Certainly the role of the network effect is playing a huge role in these valuations. The scary thing is that in order to justify these valuations founders will have to become more aggressive in pricing and billing practices. We are greatly benefiting from dirt cheap software right now, the assumption being its more important to grow the network and reach that critical mass before the competiton. What happens when all of these SaaS companies decide its time to cash in and raise their prices? (and by raise prices, more like do tricky things to maximize how much you are spending, vetern marketers know all about how to pull that one off.)
The danger zone for these valuations is what if the company doesn't really have something thats going to last? We assumed that with Facebook, because of all the social networks that came before. So far we are wrong. We assumed this would be the case with Zynga and so far were right. What if some of these software startups end up being more like games and less like things that stick around a long time?
Complicated subject. Lots of exceptions. Certainly the role of the network effect is playing a huge role in these valuations. The scary thing is that in order to justify these valuations founders will have to become more aggressive in pricing and billing practices. We are greatly benefiting from dirt cheap software right now, the assumption being its more important to grow the network and reach that critical mass before the competiton. What happens when all of these SaaS companies decide its time to cash in and raise their prices? (and by raise prices, more like do tricky things to maximize how much you are spending, vetern marketers know all about how to pull that one off.)