Bubble trouble?

A few weeks ago, SmartCompany tech writer Brad Howarth looked at Australia’s new dotcom boom. In just six months, more than $320 million worth of investment has poured into web start-ups in scenes that have brought back memories of the last dotcom boom in 1999-20001.

And you know how that ended!

Of course, it’s not just in Australia that this is happening. In this year alone, we’ve seen Facebook valued at $50 billion, Groupon valued at $6 billon, Twitter valued as high as $10 billion and Zynga valued at $10 billion.

While all of these companies are leaders in the fields, none of them are producing financial results that could justify the valuations and are unlikely to do so in the near future.

And that’s got plenty of analysts worried.

In a great piece from Britain’s Guardian website, Alan Patrick, co-founder of technology consultancy Broadsight, has created a great list of the top 10 signs of a dotcom bubble.

The list starts with the “the arrival of a New Thing that cannot be valued in the old way” for which what Patrick calls “Dumb Money” pays too much for.

We then progress through the cycle. Start-ups get too much money, companies without products get funding, and then one of the industry’s biggest players has a huge float. It all ends (in tears of course) when a New Thing buys an established media company.

The checklist is both humorous and insightful. What’s most interesting though is that we are arguably only at the start of the cycle, marked by AOL’s $300 million purchase of Huffington Post, which appeared to be based on a multiple of revenue – not profit, as is traditional.

We are still some way away from the Big Float (it looks likely to be Facebook) but we are starting to see young businesses (Groupon is an example) getting funded on astronomical valuations.

No two cycles are ever exactly the same, but it will be very interesting to see how the current web boom plays out.

Valuations in Australia appear to be fairly reasonable at this stage, but in the US there are some huge numbers being flung about.

Hopefully the business community doesn’t do what it usually does and forgets the past.