blowing bubbles: spend now, think later

tony has been pondering a stupid question: when will having a business plan matter? he’s talking, of course, about new web startups that are getting funding without a business plan. actually the question isn’t a stupid one at all, rather it’s one that investors are simply not concerned with. should they be? most definitely. why aren’t they then? too much money, too much faith, too much optimism, take your pick.

the guilty parties include not only venture capital firms funding the projects (like Union Square Ventures that funded twitter) but also include companies like google (youtube) and yahoo (del.icio.us) that ultimately acquire these projects.

The question everyone asks is “What is the business model?” To be completely and totally honest, we don’t yet know.

the venture capital firms that invest in the companies do so without having any idea of how the services will be monetized but hope that at some point in the future a corporate giant will swallow the service up and dish a handsome payout to the venture firm, making monetization its own worry. union square, for example, is investing in twitter and hoping to get lucky the way they did with their investment in del.icio.us when it was bought out by yahoo.

the company that ends up acquiring the startup ultimately does so thinking that they will buy it while its hot and help it grow and deal with monetizing it later. it is more a purchase of internet users’ attention (time and page views) than anything else. from google’s point of view it probably made sense to purchase the attention of 64% of the online video-watching audience and worry about squeezing them for money at a later date.

it doesn’t necessarily make sense, and i don’t see it as the best way to go about investments and acquisitions but when you have that kind of money, you’re probably not thinking like me. for now, both the venture capital firms and the companies making the purchases are just blowing bubbles. we’ll have to wait and see what happens.