Is Facebook's Dominance a New Internet Bubble? The Role of Goldman Sachs

The rise of Facebook has been nothing short of revolutionary. With over 600 million users worldwide, the platform's growth is remarkable and its potential is certainly daunting. This can be observed in the recent shift of many Google employees, who have opted to join the social giant rather than the search engine company. If Facebook continues to expand at this rate, it could have a significant impact on not only Google but also Microsoft and Apple, the current giants of the internet. Will Facebook's increasing power spell the end of these giants?

As with other speculative bubbles—such as real estate and oil—there is always potential for a bubble in the market. European stocks or commodity prices might become the next speculative bubble. However, Facebook remains a powerful force in the social media landscape unless someone creates a better social ecosystem.

Media Industry in the Grip of Social Networks

The social media influence has already started to affect other industries, especially the media sector. Take the case of Comcast and NBC: they merged because of the fear that Facebook, Apple, and other powerful players would disrupt their traditional business models. These media CEOs are aware that their future could greatly depend on whether Facebook can forge partnerships with multiple studios.

Goldman Sachs and the IPO Controversy

Now let's talk about Goldman Sachs, the renowned investment bank. Their role in the globalization of the financial markets, particularly in the late 1990s, allowed many speculative companies to go public without stringent requirements. Their influence on the IPO market has been widely criticized, especially when it comes to the potential Facebook IPO.

Goldman Sachs has an image problem when it comes to their management of Facebook's potential IPO. Facebook is hesitant to open up their books, and this has added another layer of complexity to the situation. However, despite these challenges, many industry experts predict that the current valuation of Facebook at around $50 billion is still too low. The reason for this is the abundance of capital seeking to invest in this burgeoning market. The secondary market has yet to list any shares, which only adds to the excitement surrounding Facebook.

The Web 1.0 Bubble and Lessons Learned

Recall the period of the late 1990s and early 2000s, when the internet was in its infancy (Web 1.0). In this phase, companies rushed to go public, and many of them did not meet the traditional financial requirements for an IPO. Goldman Sachs played a significant role in pushing for relaxed IPO regulations, which ultimately led to a market bubble. These companies lacked real profitability and were simply a pyramid scheme fueled by investor enthusiasm. When the market cooled down, many of these companies failed, leaving investors disillusioned and dissatisfied.

Today's venture capitalists, organizations like Sequoia Capital, are wiser and more discerning. With a track record of investing in successful internet companies such as Facebook and Google, they are more cautious about overvaluing speculative new companies.

Conclusion: A Balanced View

While Facebook's dominance and potential for a bubble cannot be ignored, it is essential to maintain a balanced view. Facebook has the power to revolutionize how traditional media operate. However, it still needs to prove its financial viability before it can reach a justifiable valuation. The ultimate question is whether Facebook can evolve from a speculative bubble into a sustainable and profitable entity.