Is LinkedIn The Latest To Play The Skype-Hype Valuation Bubble Game?

from the anyone-taking-bets-on-the-final-amount? dept

Over the past few years, we've noticed a pretty consistent pattern among startups trying to create huge valuations for themselves in a short period of time. While other companies have done it in the past, the latest cycle really kicked off with Skype confusing people into thinking it was worth billions. Despite having relatively low revenues, there suddenly leaked rumors that Skype was for sale. Skype denied it, and then had one of its investors say the company was worth well over a billion. Then the feeding frenzy began, until eBay came out the winner -- a move it later regretted. Facebook was the next to follow the Skype Hype Strategy, but may have been a bit too early to the game. It took an extra year, but the company may have outdone Skype in its $15 billion valuation (though, unlike Skype, Facebook hasn't turned that into real cash yet). In between, YouTube used a nearly identical strategy to pump up its valuation.

Here's what you do: get a little buzz. Leak a report to the press about a buyout offer. Deny the reports of the buyout offer and then have either an exec or an investor make an offhanded remark about how the company is actually worth billions, allow the feeding frenzy to begin and eventually pick an exit opportunity. It also doesn't hurt to have some sort of PayPal connection (which both Facebook and YouTube had). The latest to test out this strategy may be LinkedIn, which also has the PayPal connection. Last week the rumor broke that News Corp was trying to buy LinkedIn. The company's CEO quickly denied the report and said that the company would need to sell for "a lot more" than a billion dollars. Now, the latest reports are that News Corp isn't buying LinkedIn, but just like those other stories, the stage has now been set. Suddenly others may start thinking that perhaps LinkedIn is a good buy for over a billion dollars, and the feeding frenzy begins again. Anyone want to take guesses on the next startup to play this game?

Filed Under: buyout, hype, rumors
Companies: facebook, linkedin, news corp., skype, youtube