• Business Week, Monday, October 15, 2007 11:15 AM

Many believe the valuations being placed on Web firms in Silicon Valley are out of control. Facebook fetching $10 billion? The company's only expected to sell $150 million worth of advertising this year. What about RockYou, which creates programs for Facebook, seeking $500 million? The sum total of third-party revenues on the social networking site is less than $1 million. Then there's the rumor that CNET wants TechCrunch for $100 million. TechCrunch is an industry blog. These were all unsubstantiated rumors of course, but the result is a whole bunch of bubble chatter in Silicon Valley.

These seemingly astronomical valuations might not be too far off. Why, because the future of advertising is digital. Which means there's a ton of ad revenue coming to these new media companies once advertisers and publishers figure out how best to take advantage of their traffic.

The big valuations are justified says because there's little downside for a Web giant like Microsoft investing $500 million in a company like Facebook. What's $500 million to Microsoft? EBay is an even better example. The company took a $1.4 billion writedown recently, and its stock actually went up.

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