Since we find ourselves in another Internet bubble – and, believe me, being here in Palo Alto, I'm sensing it more acutely than those in other parts of the world – I wanted to touch on a phenomenon I've witnessed recently.
As we all know, investors really never learn from their mistakes. Human behavior repeats itself, over and over again, which is pretty much the basis for using patterns for predictive value. Given the insanity of 1995-1999 and its devastating aftermath from 2000-2002, you might think investors would shun Internet stocks until, oh, about 2037. However, since LinkedIn has set everyone ablaze with excitement, the investing public is more than happy to give it another go.
I know a lot of venture capitalists, and naturally they bristle if I ever challenge the notion that the new crop of Internet darlings might not necessarily be great long-term enterprises. To a man, they state that It's Different This Time because….
+ these are real companies…..
+ with real revenues…..
+ and real profits
When I hear this, I yearn for a few awkward moments of silence and then – off in the distance, at the far side of the room – the sound of one man, slowly clapping, as if to mock what had just been uttered without one hint of irony.
Real revenues. And real profits. Whoop-dee-freaking-do. Do you want a medal or something? They act like the fact that a business is actually capable of generating a little more in revenues than expenses means they should hold a parade. It's all well and good that the business generates a profit, but…….news flash, gents!…….that's what a business is SUPPOSED to do!
I am sure that Facebook, Zynga, Groupon, LinkedIn, and a few others are going to be with us for a long, long time, and they're going to make plenty of founders and early employees rich. But excuse me if I don't get a boner about companies that manage to throw off a profit. That sort of thing was perfected a few thousand years ago.