Skype and Hype

« eBay and Skype (continued) | Main | That's Ridiculous »

Skype and Hype

The Stalwart blog takes me (at least I think its me) to task for using theories like Metcalfe's law and Reed's law to value companies.

The Stalwart ties this into the Skype deal, which he thinks was way overvalued by eBay.

That got me thinking a bit and I'd like to explain.

We believe the only way you can value companies is using a reasonable multiple of cash flow.

When we think about value creation, that's how we think.

And generally we invest at a value that is a fraction (some would say a tiny fraction) of the exit values we think are obtainable in the next five to six years using a reasonable multiple of cash flow.

So why am I blogging about Skype and talking up these theories like Reed's law?

Because its very instructive to learn from the moves that others are making and have made and understand how value is being created.

And theories like Reed's law help bring clarity into debates about whether to keep systems closed or open them up.

There are a lot of people claiming Web 2.0 is a bunch of hype being fostered by the VC community in order to create another bubble which we can all profit from.

There is certainly plenty of hype going around and maybe this blog is adding to it in some ways.

But that is not my goal.

My goal is to have a conversation about the things I am seeing and the analysis I am reading and figure out what makes sense and what does not.

Once we do that, we can apply it to the investments we make.

And hopefully we'll make some money the old fashioned way in the process.

As I wrote in my Bubble 2.0 post six months ago:

If you were at the first party, then you should never forget how it felt when it was over.

Drink responsibly this time.

Comments (7) | | TrackBack (6)

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d83451b2c969e200e5502225f38833

Listed below are links to weblogs that reference Skype and Hype:

» The Start of Internet Tsunami 2.0 Averted? eBay Shareholders Get the Final Word: "Skype Who?" from Sacred Cow Dung
[Uncle! Uncle! I give Up I really thought I could make it as thelast hold-out in the VC Blogosphere NOT to comment onthe Skype-eBay (or is it eBay-Skype?) Deal Wrong again cgm] What the Skyp... [Read More]

Tracked on Sep 29, 2005 1:14:27 PM

Tracked on Sep 29, 2005 1:17:20 PM

Tracked on Sep 29, 2005 1:21:41 PM

Tracked on Sep 29, 2005 1:55:35 PM

Tracked on Sep 29, 2005 3:44:59 PM

» 2^N versus N^2 from Hitchhiker's Guide to 650
I’ve been trying to digest Umair’s latest presentation on “edge competencies” especially because Umair’s distinction on Metcalfe Reed’s law (+ his own Hague law) is an in interesting framework for segmenting as well as evaluating ne... [Read More]

Tracked on Oct 2, 2005 11:53:32 PM

Posted September 26, 2005 in Venture Capital and Technology

Comments

Not that it specifically matters to your point, but "Reed's Law" attempts to calculate the value created through group-formation made possible by platforms like eBay, egroups, Sourceforge. Reed contrasts this with "Metcalfe's Law," which describes the value of 1-to-1 communication networks, like email, fax machines, IM and Skype.

I don't use Skype, but it sounds like Reed would prefer you used Metcalfe's law, and not his, for this purpose.

Posted by: Jonathan Glick | Sep 26, 2005 2:36:32 PM

I think it's important to distinguish the meaning of the word "value" in the context of Metcalfe or Reed's Laws. These "laws" provide a framework for user adoption that is uniquely viral (e.g. zero marketing dollars). They do not, however, suggest value in the sense of business models.

The conversion of network expansion/growth value to biz model (cash flow) is key to financial analysis.

Let's look at eBay's purchase of Skype, and let's further assume we do so in only one dimension... pay-per-call. Now with a spreadsheet, run sensitivity analysis for the eBay community of buyers and sellers (and # of transactions) that are likely to utilize PPCall.

While running such analysis, don't forget the Google lesson. One of the brilliant strokes by GOOG was the fact that they enabled the long tail of advertisers to buy ads... all it took was a credit card. They did this while the rest of us in dotcom land were building dedicated ad sales forces that couldn't scale by selling $100 media buys.

So back to eBay & Skype... run the spreadsheet and do the math... the numbers will shock you.

Posted by: Robert Young | Sep 26, 2005 7:04:54 PM

Wouldn't you agree that deals become inflated by factors exogenous to numbers and valuation. For instance, Murdoch has allocated one billion for acquisitions and therefore the pressure is on his advisers to do a deal quickly to get paid. Whoever looks good at the time cashes in.

It's all about timing and the timing is mood based. That's what I see. These deals are not driven by numbers.

You know when I realized this. It was when I saw a credible fact based study that says 61% of "playing the breakout" are losses. Up to that point, I thought you played the breakout as in buy high and sell higher. In fact, you should short the breakout. It took a long time to realize this and change camps.

On a side note: play some Bob Dylan over at Rhapsody. It sounds so good in the current context.

Posted by: Marina Architect | Sep 27, 2005 1:41:24 AM

... and because ...
an investment in amazon (at launch) is only worth 1/3 of the same investment in ebay ... ignore commons-based peer-production at your expense, I think ...

Posted by: David Gibbons | Sep 27, 2005 2:10:35 AM

Posted by: ad aware | Nov 17, 2005 11:49:20 AM

amateur couple amateur gay amateur gratuit amateur libertin amateur nu amateur porno amateur sex amateur sexe amateur video amateur webcam amateur x amateur anal fisting anal anime asiatique nu asiatique bite black anal blacks on blonde webcam gratuit webcam sexe femme black webcam chat cul cul gratuit couple amateur erotique ejac feminine ejac facial defloration coquin blonde salope bondage voyeur gratuit erotique gratuit bukkake cul de femme black teens ejac faciale chatte chatte humide double anal film x amateur free porn movies femme mature femme nu femme erotique femme facile xxx fetichisme femme mure film amateur femme en chaleur femme cochon film sexe femme sex x amateur femme coquin femme mure nu femme sexe fille facile femme nu gratuite film sexe gratuit femme photo hardcore gros penis grosse salope hentai x histoire erotique young porn gros teton gratuit sexe jeune gay video grosse femme grosse bite jeune femme gros sein gros cul gros sexe jeune amatrice hentai jeune chatte jeune femme nue hard sexe jeune lesbienne mangas erotique jeune nu voyeur france mangas sexe jeune vierge mature lesbian mature gratuit lesbienne nu mamie jeune gay masturbation femme lesbienne photo lesbienne gratuit lesbienne gratuite jeune sexe jeune salope lesbienne jeune fille voyeur mature mature sex sex mangas sexy lingerie video coquin video de cul transsexuelle sexe video sexy mature triple penetration video amateur video amateur x sexe vieille sexe mature sexe porno sex xxx teen amateur sexe webcam sex femme video cul gratuit sexe video gratuit teen porn sexe video gratuite sex mature sexe photo mature women photo gratuite sexe photo de cul photo gay gratuite photo de cul gratuite photo amateur mure petite chatte photo salope photo lesbienne mature sexe video hentai video lesbienne photo gay gratuit photo femme video erotique partouze photo cul gratuite photo sexe amateur photo de chatte penetration photo gratuite femme nu photo fille photo xxx portail du sexe photo sein photo sexe gratuit video salope porn porno asiatique photo sexe porno mature porno black sein de france video mature photo sexe gratuite sein salope gratuit photo transsexuelle porno amateur photo voyeur porno sexe poitrine salope salope gratuite video sexe sexe femme video xxx gratuit sexe hard gratuit sexe fr sexe amateur gratuit sex amateur gratuit sexe en direct sexe gratuit photo sexe hard sexe gratuis sexe gratuit sexe feminin sexe amateur sexe gratuit video video sexe gratuit video xxx sein enorme sein gratuit sexe sexe gaulois sex amateur sexe extreme sexe hardcore blague codec divx ad aware antivirus divx a telecharger antivirus en ligne chanson a telecharger codec telecharger carte postale ancienne antivirus gratuit blague humour divx codec carte postale virtuelle blague blonde divx dvd clone cd bitdefender carte postale antivirus a telecharger antivirus gratuit a telecharger emule telecharger gratuit film gratuit a telecharger film porno a telecharger film porno gratuit a telecharger film x a telecharger fond d ecran a telecharger horoscope horoscope cancer divx gratuit edonkey edonkey 2000 emoticone a telecharger emoticone a telecharger gratuit emule france emule gratuit emule telecharger film a telecharger emule film x gratuit a telecharger firewall horoscope taureau horoscope verseau jeu a telecharger jeu pc a telecharger jeux a telecharger jeux a telecharger gratuit jeux a telecharger sur pc jeux de voiture jeux flash a telecharger horoscope capricorne horoscope chinois horoscope du jour horoscope gemeau horoscope gratuit horoscope lion horoscope poisson horoscope sagittaire horoscope scorpion horoscope vierge imesh kazaa msn messenger 7.5 telecharger messenger 7.5 mp3 gratuit telecharger mc afee logiciel gratuit mp3 gratuit msn messenger telecharger kazaa telecharger messenger mp3 telecharger logiciel antivirus msn messenger plus kazaa lite telecharger kazaa lite logiciel architecture mp3 telecharger gratuit msn 7.5 telecharger msn messenger 7.5 messenger msn recette partition guitare nero burning rom partition de musique musique mp3 musique mp3 a telecharger nero 6 norton antivirus 2005 nero express nero norton 2005 musique a telecharger gratuite musique musique a telecharger gratuitement norton musique a telecharger gratuit nero burning musique a telecharger msn telecharger partition gratuite recette minceur recette de salade shareaza telecharger recette gateau chocolat recette punch recette courgette recette gateau recette cocktail sims 2 telecharger recette sangria recette pain recette facile sims 2 telechargement recette paella recette crepe recette de cuisine recette dessert recette de julie recette de confiture recette barbecue telecharger kazaa lite gratuit telecharger emule telecharger les sims gratuitement telecharger kazaa little telecharger kazaa gratuitement telecharger gratuitement msn telecharger kazaa lite telecharger emoticone telecharger emule gratuit telecharger kazaa en francais telecharger gratuitement kazaa telecharger e mule gratuit telecharger gratuitement msn messenger telecharger divx gratuit telecharger les sims 2 telecharger les sims gratuit telecharger jeu flash telecharger kazaa gratuit telecharger gratuitement logiciel telecharger emule gratuitement solution jeu telecharger divx solution jeu video telechargement gratuit de film telecharger clone cd telechargement film x gratuit telechargement logiciel telechargement film divx telecharger antivirus gratuit solution telecharger codec divx telechargement film telecharger chanson skype telechargement film porno gratuit telechargement film porno telecharger acrobat reader telecharger antivirus tablature guitare tablature telecharger mp3 telecharger mp3 gratuitement telecharger msn telecharger msn 7.5 telecharger msn 7.5 francais telecharger msn 8.0 telecharger msn gratuit telecharger msn gratuitement telecharger msn mesenger telecharger msn messenger 7.5 telecharger msn messenger 8.0 telecharger msn messenger plus telecharger msn plus telecharger music mp3 telecharger musique gratuite telecharger logiciel divx telecharger logiciel gratuit telecharger logiciel mp3 gratuit telecharger messenger telecharger messenger 7.5 telecharger winamp telecharger windows messenger telecharger winzip telecharger winzip gratuit telecharger yahoo messenger zone alarm telecharger nero telecharger nero 6 telecharger nero gratuit telecharger nero gratuitement telecharger norton antivirus 2005 telecharger shareaza telecharger shareaza gratuit telecharger shareaza gratuitement telecharger video telecharger video porno gratuit telecharger video sex telecharger video x

Posted by: amateur couple | Nov 30, 2005 8:40:38 AM

Notebooki , Telewizory Lcd , dvd , kino domowe , Kamery Cyfrowe , kuchnie , ekspresy do kawy , lg , samsung , siemens , panasonic , toshiba , amica , Odzież dziecięca , Kancelaria prawna

Posted by: Aparaty cyfrowe | Jan 16, 2006 6:56:24 PM

A VC

Musings of a VC in NYC

Skype and Hype

TrackBack

Comments

Post a comment

Flickr Photostream more →

A VC

Musings of a VC in NYC

Skype and Hype

TrackBack

Comments

Post a comment

Main RSS Feed of All Posts

Flickr Photostream more →