The new high tech-bubble might not be the one you're thinking of. Measuring the bubble’s size and inner pressure of is a delicate exercise. For today, we’ll consider two sectors: social networks and online media -- such as the Huffington Post acquired last week by AOL for a stunning $315m.

In the valuation game, social networks are in a league on their own. A month ago, Sharespost, the ghost-trading site for private companies, gave Facebook a valuation of $82.9bn (see this Bloomberg story). Now, for unknown reasons, the figure is back to $53bn. Twitter is said to be worth $5bn to $10bn, depending upon Facebook’s or Google’s competing appetites. Ordinary rules of arithmetics don't apply when pondering the wisdom of such figures. To sort this out, let's see if we can come up with other metrics.

With Facebook, investors buy size and dominance. 600m members all over the world; more than 60% of all web users; on some markets, a quarter of users’ internet time. Facebook is the nets’ biggest gravitational attractor, the web’s ultimate rizhome: sooner or later, most of the world’s sites will be connected to one or more of Facebook’s services.

The main danger lies in the usual toxins of success: arrogance, inability or unwillingness to   give more than lip service to users’ concerns and sensitivities, defiance of written and unwritten market rules. Facebook's biggest threat is Facebook itself. But none of the above matters today and high expectations lead to a stunning valuation of $80 per member.

Is it excessive? Well, in october 2007, when Microsoft assigned a $15bn value to Facebook by investing $240m for a 1.6% slice, everyone mocked both the move and the number. At that time, each Facebook member carried a valuation of… $300, almost four times more than today’s -- and the company was losing money.

In other words, Facebook looks (relatively) cheap today, especially since it is now profitable. On the operational side, though, Facebook's ARPU (Average Revenue Per User) remains at around $3 per year and per member, quite high by internet standards.

Twitter's ARPU is about one tenth of Facebook's: $0.28 vs. $3.30. But the microblogging service carries a stunning valuation. If Facebook and Google are indeed about to wage a bidding war for the little bird and willing to cough up $8bn to $10bn, it could put a valuation of $50 to $60 on each of its 160m members (actual users are a fraction of that). For a company that doesn't have a proven business model and  is hemorrhaging money, this feels ridiculously high. But Twitter’s simple yet extremely powerful medium could be a natural fit for Facebook and, to a lesser extent, for Google -- as long as the search engine is able to get out of its current one-trick-pony situation.

The third strong player in the social network field is LinkedIn. The social network for professional is now preparing for its IPO (see story in DealBook and its SEC prospectus). Sharespost sets its value at $2.51bn. Each one of its 90m registered members carries a valuation of $28 and generates an ARPU of $2.00-$2.50. What investors are about to buy is a unique position in the professional social network sector, and a three digits annual growth rate which now threatens the highly lucrative business of jobs classifieds.

Is this a social network bubble? I’m not so sure. Thanks to its size, to its footprint on the internet, Facebook effectively bars anyone from getting into its own business. Twitter seems overvalued as a stand-alone business (no viable revenue stream), but not necessarily as complement to one of the web’s behemoths. And LinkedIn is likely to possess the greatest potential for growth.

If there is a bubble, it must lie in a collective hallucination over traffic and audience valuations. See what happened last week with the Huffington Post. The $315m acquisition by AOL puts a value of $13 per unique user, each bringing an ARPU about of $1.20. These numbers are in line with most news-related internet properties. (I already said what I think about the journalistic dimension of the Huffington Post; see Aggregators: the good ones vs. the looters.)

The HuffPo is a digital sandcastle. Its three pillars are:
- Unabashed aggregation machine recycling roughly 300 stories a day from other medias;
- A modest amount of original production (largely drawn from newswires) that forms the kernel for a vast debating space involving thousands of unpaid bloggers (who now feel cheated and are about to create their virtual Tahir Square);
- A powerful and well-managed stream of celebrity stories, thanks to Arianna Huffington's connections in Hollywood and in left-wing political circles. (See blogs by Alec Baldwin and by Bill Clinton's former Labour Secretary Robert Reich).

Amazingly, one of its staffers candidly exposed the Huffington Post’s M.O.

First, the aggregation process.

"All day long, [front page editors] receive emails from reporters, editors, publishers, publicists and flacks from organizations that include but are not limited to, the following: The New York Times, The Washington Post, The Wall Street Journal, The Chicago Tribune, McClatchy Newspapers, the London Guardian, USA Today, CNN, MSNBC, ABC News, CBS News, C-SPAN, Time, Newsweek, Rolling Stone, The Atlantic, etc. Those emails all ask the same thing: Would you consider placing this content on The Huffington Post? The front page editors work each day to separate the wheat from the chaff, and get the most timely and interesting stuff on the web. (And depending on how specific the section you are working in, say Books or Entertainment, the sorts of sources expand dramatically.)"


Great. Most of the HuffPo's editorial tinkering consists in repackaging the work of others, producing stand-alone stories whose only aim is generating comments and internal blogging. In effect, original publishers are giving the "aggrelooter" the rope it will use to hang them.

And then :

"All of the above -- the original content that drives the entire business and the aggregation that sends readers out into the world of news and information -- helps to build an architecture that enables thousands of other people to have a space to come and write and play and inform and start conversations. Those people are the Huffington Post bloggers -- who flock to the site for a chance of being heard.


If you are, say, the communications director of NARAL, you get paid for your contribution to the Huffington Post… by NARAL, the organization that gives you a salary to disseminate your message."


How naïve is this exposure of the Huffington Post's ethics! Put another way, the HuffPo doesn't mind propagating the "message" of lobbies such as the pro-choice NARAL organization presented as a blog! (It could have been worse, a Sarah Palin affiliate for instance).

What ailing AOL bought is vapor. About 35% of the HuffPo's users come form Google. They land on cleverly optimized content: stories borrowed from other (and consenting) medias that mostly generate blogging and comments. This is the machine that drove 28m unique visitors in January, which makes the HuffPo close to the New York Times/Herald Tribune audience of 30m UV.  With one key difference: each viewer of the NYT websites yields an ARPU of $11, ten times more than the Arianna thing. Based on the HuffPo's valuation, the NYT Digital would be worth billions. That's a consolation.

frederic.filloux@mondaynote.com

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