Share valuations ahead of Dot-Com Bust II have been crazy-stupid, demonstrating yet again, to borrow Mencken’s line, that no firm in the IPO business will ever go broke underestimating the intelligence of the American investor.  Witness the huge markups paid last May for IPO shares of the still profit-less LinkedIn, a company that purports to network business contacts between individual users. Instead, and as far as we can surmise, LinkedIn has grown its subscriber base using viral techniques, mailing out link “requests” to people like your editor, who thus far has failed to throttle such e-mails. The result is that, although LinkedIn has collected a zillion names, e-mail addresses and personal data from registrants, the registrants themselves are only tenuously tied, a vast nervous system unconnected to a brain.  Of course, this didn’t stop investors from trampling each other to pay ridiculous prices for LNKD stock when the company went public last May.  Shares expected to fetch around $35 soared to $122.70 on opening day and currently trade for around $94. This is notwithstanding the fact that LinkedIn, like Facebook, has yet to develop a revenue model even remotely capable of vindicating the outlandish multiples speculators seem willing to pay for an equity stake.

Meanwhile, even as the thimble-riggers and confidence men at Goldman and other Wall Street firms salivate over the prospect of retailing insider shares of Facebook to the rubes at superheated premiums, Google is threatening to eat Facebook’s lunch and perhaps make Mark Zuckerberg’s Great New Idea the next Internet has-been. How scared is Facebook?  Some bloggers have accused the company of hiring moles to churn out hostile comments on Google+, a new social networking service that has generated such hot demand that Google had to suspend invitations to try the beta version.  And the reviewer at one big-circulation magazine drew heavy fire from Google stalwarts when he called Google+ “creepy” because of the way it quickly figures out who your friends are and what sort of online content most interests you. In fact, Google+ offers a seamless connection between all of a user’s digital devices, so that one can take a picture with a cell phone and have it turn up instantly in one’s Google online account.

Speculators clamoring for a piece of the next dot-com IPO should factor in Google’s ability to move in on any market quickly with improvements and upgrades unimagined by the market’s originators.  One thing Google+ users are bound to appreciate is that its privacy controls reportedly are effective and easy to use. Contrast this with Facebook, which botched privacy so badly to begin with that it is still playing catch-up. Privacy may not matter much to the greed-crazed investors who will be trampling each other someday soon for the privilege of paying huge markups for Facebook IPO shares, but it will always be a big concern to tens of millions of potential users.  Under the circumstances, investors who are stoked about adding Facebook shares to their portfolios should consider that the only way the company can boost revenues so that they are in line with the firm’s expected $50B+ capitalization is to compromise away subscribers’ privacy in new, and quite possibly appalling, ways.  We don’t doubt Facebook’s ability to deliver a very precisely targeted audience to advertisers, but don’t be surprised if this requires using increasingly intrusive and aggressive tactics that will tend to drive Facebook subscribers to other social-networking venues.

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