ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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The Next Internet Bust?

Facebook's recent colossal acquisition of WhatsApp is yet another sign that we are now in the middle of a new internet bubble. This bubble is different from that of the late 1990s in that it is being driven by excess liquidity in the system and the search for the "next big thing" like Google and Facebook.

When Facebook announced last month that it was acquiring WhatsApp for $19 billion, analysts were all asking: “What’s up?” Besides the fact that the sum was a huge price to pay for a financially small start-up, however successful it was among users of the app, it made little sense given the absence of revenues to back that valuation. This strengthened fears being expressed for the last couple of years that the world is witnessing another internet-related bubble like the dotcom bubble of the late 1990s.

There were also less visible indications of such a bubble, illustrated by firms likes Snapchat and Pinterest. Snapchat had developed a photo-sharing application with time-limited access, which permits the sharing of pictures in relative privacy. This benefit of privacy ensured that by the end of last year Snapchat users were sharing more pictures every day than users of Facebook and Instagram combined. That popula­rity attracted the attention of venture capital firms. It also encouraged Facebook to propose a $3 billion buyout offer, three times the price at which it bought out Instagram. Snapchat’s promoters refused.

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