There are, I agree, some egregious cases. Three examples spring to mind.
Color raised $41 million on basically nothing. Many, including myself, criticized the concept. All the defenders had was "we don't really know where this is going".
The second example--and this is going to be somewhat controversial--is Twitter. Twitter is now at the point where they need to start figuring out the monetization problem. They've established a site where third-party access is a huge part of the user base. The 140 character message format limits in-stream options (and people have thus far railed against inserting ads into tweet streams).
Plus (IMHO) Twitter has become a tool for following celebrities. The TMZ of the Internet if you will. Not that there isn't a market for that but it's not as large as the vision of people in general sharing status updates. I'm far from convinced that Twitter will make that transition to mainstream.
The third is Groupon. Many, including myself, have been critical of Groupon's shady practices for awhile. What's happened in the last few months is that this Ponzi scheme has started to unravel. Better now than after the IPO. And not before taking over $1 billion in VC, most of that coming from DST who seems to be willing to throw money around with impunity. Better them than American consumers who Congress might feel some need to jump to the defense of.
But, in general, this isn't a celebration of businesses that make no money. It's allowing businesses to scale and grow quickly rather. Many Internet businesses couldn't be profitable if small. Or organic growth would simply take too long and a VC-backed rival could well supplant them.
In Tumblr's case, growing from 2B views/month to 13B/month is nothing less than impressive. The "blog" format has (IMHO) lots of monetization potential. In the short to medium term Tumblr seems destined for more growth or a big exit on buyout.
It goes both ways. The distinction might be efficiency of profit per capital and time invested. Something like patio11's bingo card maker, which makes money out of almost nowhere compared to its cost, works well only if small. But that type of set-it-and-forget-it business doesn't scale to the likes of Groupon or Dropbox or Spotify or Airbnb.
I would say social networks are not "most internet companies". And I would also say that most social networks are not generating enough ad revenue to generate sustainable profits.
In Twitter's case, a revenue source besides ads is data. They're selling some feeds directly (to Microsoft and Google), and seem to be reselling others via Gnip, taking a cut (http://gnip.com/twitter).
Color raised $41 million on basically nothing. Many, including myself, criticized the concept. All the defenders had was "we don't really know where this is going".
The second example--and this is going to be somewhat controversial--is Twitter. Twitter is now at the point where they need to start figuring out the monetization problem. They've established a site where third-party access is a huge part of the user base. The 140 character message format limits in-stream options (and people have thus far railed against inserting ads into tweet streams).
Plus (IMHO) Twitter has become a tool for following celebrities. The TMZ of the Internet if you will. Not that there isn't a market for that but it's not as large as the vision of people in general sharing status updates. I'm far from convinced that Twitter will make that transition to mainstream.
The third is Groupon. Many, including myself, have been critical of Groupon's shady practices for awhile. What's happened in the last few months is that this Ponzi scheme has started to unravel. Better now than after the IPO. And not before taking over $1 billion in VC, most of that coming from DST who seems to be willing to throw money around with impunity. Better them than American consumers who Congress might feel some need to jump to the defense of.
But, in general, this isn't a celebration of businesses that make no money. It's allowing businesses to scale and grow quickly rather. Many Internet businesses couldn't be profitable if small. Or organic growth would simply take too long and a VC-backed rival could well supplant them.
In Tumblr's case, growing from 2B views/month to 13B/month is nothing less than impressive. The "blog" format has (IMHO) lots of monetization potential. In the short to medium term Tumblr seems destined for more growth or a big exit on buyout.