In 1775, James Watt patented the STEAM ENGINE design
If you were an investor in 1775, you probably would not have realized the IMPACT and the POWER of the IDEA of the Steam Engine.
Just calculating the CURRENT VALUE of the Steam Engine in 1775 would be:
– The cost of making it
– The patent value
– The best marked up price possible and hence the profit
– The value of the Company that would make this (Assume total production possible, hence profits forecast etc).
NO ONE WOULD VALUE the POWER AND IMPACT of the Steam Engine as the BASIS of the Industrial Revolution and would it would create 200 years down the line…
Just google and research the real impact the Steam Engine had on Industry and Life as we KNOW IT TODAY.
I believe that the INTERNET is the MODERN STEAM ENGINE.
And investors and markets have begun to VALUE what lies ahead of this monstrous invention – EXPRESSED AS THE VALUATION OF COMPANIES leading the Forefront of the APPLICATION of the Internet in modern day lives..
The real reason Internet firms enjoy monstrous values are because NO ONE can understand what the ECONOMIC IMPACT these ideas and innovations COMBINED with the INTERNET can do!!
– Twitter can BRING DOWN COUNTRIES
– Facebook can BECOME A COUNTRY!
– Foursquare would make the Compass look like a Rock
– Linkedin makes everyone get a job including Obama
– Zynga makes you buy 100 tractors you will never drive on a farm you will never own
etc etc
The reason why valuations are so crazy today are because markets are trying to understand and FORECAST what the REAL APPLICATIONS of these inventions will really be!!!
Markets and investors always value POSSIBILITIES and POTENTIAL that they don’t understand (Internet) much HIGHER than things they understand (Cement factories).
– Will Twitter become default news media of the world?
– Will Facebook be the GLOBAL SOCIAL SECURITY number of the world
I leave it to you to imagine all the Internet brands you like and WHAT THEY COULD BECOME as a concept and application to be used BEYOND WHAT they are now.
If James Watt was alive in 2011, he would have had a similar ride!!!!
****
Alok Rodinhood Kejriwal
yatin – please use this logic to tell me the market valautions of foursquare and twitter reported at 500 million and 5+ billion…
Peter Montegomery
That’s not really the point,Alok .. the point is if the valuations are inflated and the simple answer is yes.
The power lies with internet and not with the apps .. as history has proven there will always be new apps leveraging the internet in better ways. Yesterday it was google, today facebook tomorrow someone else .. just stating some irrational thoughts do not justify valuations …
to give your own example inventor of steam engine created something extremely powerful ,that does not imply that every new funky looking steam engine company should start demanding exorbitant valuations …
Farshid Master
Firstly Internet and its products go hand in hand…If there are no apps..no point of the internet and vice-versa.
Also today its all about firstly an idea and then a solid product to back it up.
With regards to valuations – These products talked about in this article are mind boggling and the possibilities of doing good things with these are immense.
Investors today not only see ROI but also see the potential of the idea and the vision of the owner…
Aditya Singh
Why mix all internet companies in the same category.
There is something called Herd Mentality. Thats what causes the bubbles to happen. Its a poison.
The first movers in the market are good innovative and carry a lot of value. But giving overpriced value to 10 other companies in the same space is bs.