During the dot com craze in 1998-2000, the prescription for get-rich-quick was to create a company with a business model that leveraged the Internet in some way; Raise a few $ million in venture capital to support the development of the concept; Sign some meaningless partnership agreements with big companies; Spend the venture capital money on a public relations firm to tell the world what a wonderful idea the company has developed; Finally, cash out with an IPO or sale to larger company.
Most all of these “dot bomb” companies and their ideas have since been washed away. However, it’s important to note that there were some folks that were very successful with this model (e.g., Mark Cuban, who used his buyout money to purchase the Dallas Mavericks).
In 2006, it appears that the variation to this model is for the large Internet firms to use their inflated stock value to buy any web site company that has substantial “eyeballs” visiting it. The most notorious example of this is Google’s purchase of YouTube. In this case, Google is using $1.6 billion (yes, that’s billion) of its stock to purchase a company with less than $50 million in revenue. This extremely high valuation isn’t based on any type of special technology or protected business processes that YouTube developed. Instead, it’s a reflection of the “brand” that YouTube created associated with streaming video. Specifically, there are millions of people visiting the YouTube site to watch videos.
Since most of the mega-successful Internet companies are actually based on advertising dollars, the emphasis is to acquire the brand or idea to make the site the “go-to” place. Thus, companies such as Google, Yahoo, etc., must spend the dollars (or better yet, use their stock) to continue their omnipresence on the Internet. Of course, this hasn’t gone on unnoticed by entrepreneurs. For example, there is a start-up company called StumbleUpon that developed a web site for less than $2 million, and has a large cult following (i.e., eyeballs visiting the site). It is currently up for sale for $50 million.