In light of Goldman Sachs leading a $500 million funding round in Facebook, Web evangelist
Don Dodge argues that top tech companies are worth every cent of their astronomical
valuations. "The experts thought Microsoft was crazy when they invested $240M in Facebook at a $15B valuation," writes the Microsoft vet who joined Google in late 2009. "Crazy like a fox."
Yet, where investors get it wrong is when they start extrapolating the valuation of market leaders down to smaller rivals and clones. "Market valuations are asymmetric," insists Dodge. The reasoning
goes if Groupon is worth $6B, then my Copypon.com is worth at least 1% or $60M. Sorry, but that is not the way it works. The market leader has huge market share, higher margins, and much higher
vaulation than the 2nd, 3rd, or 4th place player." Adds Dodge, in most instances the top four companies in any market own 95% of the market, while every else hemorrhages capital fighting for the
remaining 5% of the market.
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