Is there a Carnegie 2.0?

Self-made billionaires in the US have historically had a very strong track record of bringing significant societal change through philanthropy. The likes of the Carnegies and Rockefellers brought libraries, higher education, and public health to the masses. In recent years, the Gates family is not only eradicating diseases, but also more importantly convincing the uber-rich to take the Giving Pledge (1 year later ~70 have taken it). So what about now? With new billionaires created everyday through the monetization of internet-based ventures, are the new money kids filling in where they left off? Aren’t the Gen Y’ers more charitable than their money-centric predecessors?

While the next Vanderbilt has not yet emerged, I like how the youth are building charity into their businesses. Not as outright philanthropic concerns but through incorporating the values of “doing good” into everyday transactions. Tom’s Shoes and Warby Parker have brought the concept of Buy One, Give One into the mainstream. I wrote about large companies like Starbucks that employ higher purpose principals compared to its older rivals. For profit microfinance institutions and venture philanthropy, despite their problems, are expanding their reach. A pessimist may call these marketing strategies, but at the end of the day, they are helping others on a daily basis when other similar for-profit businesses are not. By leveraging traditional business channels, these efforts are frequent, efficient and effective.

Pure play charities such as Kiva or DonorsChose bring the sophistication of tech market exchanges into the non-profit sector. Others such as ConvergeUS and HistoryPin bring about change through social networks. Though I applaud these creative tech efforts, they are small in the grand scheme of the world problems. Certainly in the Valley, amidst of all of this new money, altruism, and technology, there would emerge the next Andrew Carnegie, right?

Not yet. Of Barron’s Top 25 Givers of 2010, only Ebay’s Pierre Omidyar could be considered a new tech entrepreneur. Since Bill Gates, no one from the next generation has taken the helm of leading world philanthropy. Perhaps we’re too early in the cycle (people are too busy filing for bubble IPOs). Perhaps Gates is enough for now (some estimates peg the pledge’s value to eventually exceed $600B). Perhaps a centralized institution is no longer required thanks to technology as individual efforts can yield substantial results. It will be interesting to see who, if anybody, succeeds Bill Gates.  Although I'm surprised at the unusually small number of headlines, perhaps even in philanthropy, the game has changed.  With the world flattenting at a quicker and quicker pace, buying shoes just might be enough.

It's not a bubble

Its different this time aound. There's real revenue behind these companies with proven business models.  Social media, ecommerce, and advertising are now mainstream and have matured significantly from the late 90's.  Even if many of these points are true to a certain extent, none can justify the valuations that are currently in front of us.

LinkedIn is trading at about a $9B valuation, Zynga and Groupon both filed for IPOs as high as $20B.  The beauty of each of these (along with the others) is the fact that none are profitible yet.  Some like Pandora say they won't make any money in the "forseeable future."  Analysts, for example, justify LinkedIn's price target based on 65X 2014 EPS and the 100M users they currently have.  We're paying on eyeballs again; welcome to Netscape 2.0.

Why are investors making the same mistakes as they did in the late 90s?  We are not myopic enough to forget the worthless stock notifications (especially atmabus) from 15 years ago.  Even smart money is getting in at these lofty valuations; This week, Kleiner Perkins invested in Square at a $1B valuation.  Some of the first bubble carnage is still on the road (MySpace just sold for 1/16th of original price).

These companies are growing and showing relevant top lines now.  People do spend money on virtual tractors ($850M in 2010).  As i wrote about a year ago, the days of all things free on the net are no more as companies now monetize what they were afraid to in the past.  Management teams are more sophisticated and actually operate businesses for profit (except Twitter :).   At these valuations, however, one has to assume market transformative disruption.

Google killed newspapers and took a huge slice out of traditional ad dollars.  Amazon eliminated bookstores and cd shops.  These were huge industries that are no longer on the map.  Will Zynga kill off Electronic Arts or Playstation?  Groupon will take a google-sized cut from company ad spend?  Unfortunately, these days, the incumbents are much more savvy that they were before.

NBC/FOX (and others) established Hulu because they didnt know how to play in the nascent streaming space with little intention of making any money from it.  They now want to dispose of it so they can create their own meaningful net revenue streams.  They still own the content that everyone wants so they can charge what they want. Just ask Netflix.  Newly traded Homeway, despite its unique niche, will not replace hotels. Yet it trades at 1/3 of the value of Marriott and Starwood already. Cloud software packages might have interesting platforms but will not replace Oracle who is already embedded in most large corporations. 

Don't expect all of these high flying startups to take down established players to the extent their valuations imply.  Incumbents are not surprised anymore about people spending more time on the net or buying things recommended by Facebook friends. As i've always said before, the internet is merely a new distribution channel not a new business.  Although my demeanor would be different if I got in on the IPOs, i can't shake the time warp feeling of 1998.