This is fine while VCs are flush with cash, but it will only take one company like Facebook failing to meet some future expectation to make the house of cards come crashing down. So while asset prices climb based on user base, your assumption is true. But eventually someone has to “Show Me The Money.”

This is no different than silly valuations in the 90s based on BURN rates. Or dare I say the recent housing boom and crash in the USA.

twitter & other services can be successful by going for distribution first, then monetizing later, if they have sufficient capitalization. some assumptions about value per customer / page view / monetization should be inherent in such a strategy, but jason may not be far off that with some critical mass of users in double-digit millions you can be successful — of course, does depend on how much capital takes to get there too.

other companies can also be successful by going narrow and monetizing earlier, and this may be more necessary / prudent if less capital available to the business. but the Internet *does* provide a natural platform for acquiring many users quickly, and startup businesses that demonstrate this will be rightly / reasonably valued based on users/usage metrics, assuming customer acquisition costs are low & future potential value is high.

more specifically: to characterize either a growth or monetization strategy as right or wrong w/o looking at the business details is stereotyping — it depends on the [current / potential] value per customer, customer acquisition strategy & cost, growth rate, capital, etc etc. as with offline businesses, the Internet can encompass a number of business models.

to wit, you can be successful:

- selling a few thousand Ferrarris, or a hundred million sticks of chewing gum
- running a small profitable business from get-go, or Amazon that doesn't turn a profit for 10 years
- on a subscription model, an ad-driven model, a lead-gen model, or a purchase model

while going for broad distribution first w/o paying attention to monetization may sound like a bad dot-com 1.0 model, plenty of companies mentioned previously have grown a large business without substantially monetizing the userbase until after making an exit (Skype, YouTube are big examples; Flickr & MyBlogLog are smaller examples).

this isn't to say you shouldn't be figuring out a monetization strategy, but it may not be first (or second) priority if you are growing well & have reasonable confidence in positive future value / user monetization.

sorry have i beat this horse dead enough yet?

- dave mcclure