This Time the Tech Boom is Driven By Reality

Last time, the dot-com boom was driven by a frenzy over gaining eyeballs. Valuations went through the roof well before revenues.

This time the hot companies are growing real revenues remarkably fast. The WSJ noted how much faster the leaders like Groupon and Zynga have raced towards $1B in revenues, much faster than in prior tech booms and perhaps the fastest in history:

Groupon’s revenue in 2010 rose more than 22 times to $760 million in its second full year since its daily deals site launched, up from $33 million in 2009. Zynga, the maker of online social games like FarmVille scored revenue of $850 million in its third full year in 2010, more than triple the year before, and Facebook’s revenue rocketed to as high as $2 billion in 2010, its sixth full year.

Their ridiculous revenue growth rates actually rival those of the four largest Internet companies–Google, eBay, Yahoo and …

Compare all of this with the software industry. [L]ess than one-third of the nation’s top software companies reached $50 million in annual sales in six years or less – and the fastest to $50 million, Novell, took three years. Microsoft crossed the $50 million barrier in eight years; Oracle, 10 years.

It should be no surprise, then, that Facebook has crept back to a $70B market cap in private trading, and JP Morgan (JPM) just raised a $1B fund to buy into the private market of shares for high-fliers, beginning with Twitter. Something big is brewing, and the smart money is leaping in.

The tech trade press is beginning to figure out that these valuations fit within normal metrics, assuming the incredible growth continues.

It is not 1999 all over again. Not yet.

It is too facile to knee-jerk and call it a bubble when we have revenue growth of this magnitude by the leading social companies.

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About Duncan Davidson 228 Articles

Affiliation: NetService Ventures

Duncan is an advisor to NetService Ventures, where he focuses on digital media and the mobile Internet.

Previously he was at four start-ups: Xumii, a mobile social service based on a Social Addressbook; SkyPilot Networks, the performance leader of wireless mesh systems for last-mile access, where he was the founding CEO; Covad Communications (Amex: DVW, $9B market cap at the peak), the leading independent DSL access provider, where he was the founding Chairman; InterTrust Technologies ($9B market cap at the peak), the pioneer in digital rights management technologies, now owned by Sony and Philips, where he was SVP Business Development and the pitchman for the IPO.

Before these ventures, Duncan was a partner at Cambridge Venture Partners, an early-stage venture firm, and managing partner of Gemini McKenna, a joint venture between Regis McKenna's marketing firm and Gemini Consulting, the global management consulting arm of Cap Gemini.

He serves on the board or is an adviser to Aggregate Knowledge (content discovery), Livescribe (digital pen), AllVoices (citizen journalism), Xumii (mobile social addressbook), Verismo (Internet settop box), and Widevine (DRM for IPTV).

Visit: Duncan Davidson's Blogs

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