Silicon Valley: Billion Is The New Million

On the heels of today's leaked info that Yahoo is buying Tumblr for $1.1 billion comes the news that some folks think that's too little. Tumblr earned a whopping $13 million in revenue in 2012; that's right; not $30 million, not $300 million: $13 million. Essentially, they are being bought for an almost 85x of their earnings. And someone is complaining?

Tumblr offers a lively photo-based blogging service...for free. It is quite active, and has a lot of users, which explains Yahoo's interest. And yes, Tumblr has burned through the cash, all $125 million of it. With 18 whole employees, and millions of users, it still couldn't generate enough revenue to hold on for more than a few more months...and Yahoo gives it a massive exit...and someone is complaining?

On the heels of Facebook's completed $1 billion acquisition of Instagram (12 employees), and it's imminent $1 billion acquisition of GPS app Waze (80 employees), it's pretty clear that $1 billion is rapidly becoming the $100 million of the dotcom bubble era. The fact that we are already moving to people complaining about being bought for a freaking billion dollars is absolutely the clearest indicator that we have not learned anything from the previous bubbles in Silicon Valley.

After the crash that took down Web 1.0, we said we'd look at companies providing real value, real revenues, real need. Mobile makes Web 1.0 and 2.0 look like chicken feed: absolutely everyone has a mobile phone, and is on it, constantly, so the hype is escalated. Yet, the reality remains for advertisers (real advertisers): traditional media = dollars; digital = dimes; mobile = pennies. Yes, those pennies add up to real money, but we're just not sure when. Instead, we get billion dollar photo sharing and crowdsourced traffic info.

As long as the eyeballs are there, smart folks with tons of cash will throw it around like drunken sailors; it just doesn't matter to their bottom line. Facebook, Google, Apple...all have lots of billions to throw away on bets. Yahoo, a brand that many had pronounced dead until Melissa Meyer injected it with life, had $3 billion in cash on hand. That's right, a "dead brand" with $3 billion in the bank. Topsy turvy already, but add in the fact that they just pushed 1/3 of their chips all in on a site that produced $13 million in revenue last year, but has great growth and stickiness, and you have to wonder if we're all looking at a poker game that fewer and fewer can play at, especially those companies that actually produce revenue and real value.

$1 billion is the new $1 million in the Valley. Ante up or go home, it would seem.