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!!!!
****