While the social networking sites vary considerably, each relies heavily on content provided by users who can post personal profiles and build networks among friends and others with shared interests. For the most part, these users have free access and the sites are funded with advertising revenue. To lure advertisers, young sites typically offer deep discounts that make profitability elusive, and it is unclear when they will be able to push ad rates higher, if ever.
I encourage anyone who thinks these valuations have a correlation with reality to read Galbraith's classic A Short History of Financial Euphoria.
Source: Dot-Com Bubble, Part II? Why It's So Hard to Value Social Networking Sites - Knowledge@Wharton
Post a Comment