Lofty valuations aren't reason enough to party like it's 1999

Remember the Web-based pet shop Pets.com? Or online grocery Webvan? Or fashion website boo.com, which squandered $180 million in just six months in a maelstrom of publicity, but burned out just as quickly?

Remember the Web-based pet shop Pets.com? Or online grocery Webvan? Or fashion website boo.com, which squandered $180 million in just six months in a maelstrom of publicity, but burned out just as quickly? Then there was eToys.com, the online toyshop that also shut its doors prematurely.

All these and many others were victims of the dot-com boom. They shone brightly between 1997 and 2001, chomping their way through millions of dollars of VC money handed out in an era of low-interest rates. Much of these funds were spent on advertising and marketing to chase traffic investors hoped would produce a multiple return - before brutal economics and the force of the market eventually regained sway.

PR agencies got their fingers burned, too, often eschewing fees from trendy start-ups and chasing the dream through share options in companies they thought were a sure bet, but turned out to be worthless.

Does any of this sound familiar? Clearly the market learned a tough lesson during the dot-com boom and bust. However, today's increasingly overheated VC and tech sectors suggest another market implosion could be around the corner.

Social gaming firm Zynga, maker of Farmville and Mafia Wars, was just valued at $9 billion - its business model relying on tens of millions of users buying virtual goods. Microblogging service Twitter has estimated revenues of $150 million, but is valued at $10 billion. Coupon website Groupon is tipped to IPO at up to $15 billion. And the daddy of them all, social network Facebook, is valued at up to $80 billion.

Many of these businesses are also predicated on a land grab to gain traffic and users in lieu of significant revenue streams. And they are hiring PR firms to help them achieve these aims: build it and they will come is the motto.

The businesses instinctively seem smarter this time around and more based around genuinely helpful services for users, but history suggests these valuations aren't sustainable. PR firms must tread carefully, both in picking their clients and in communicating these clients' stories. 

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