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But what makes it not sustainable? As long as there exist a few GooBooks, won't acquisitions continue to be sought?



The linchpin to the whole thing is the easy VC money. It's what makes both the few startups turning into GooBooks and the many startups turning into ZombiePlatypus possible.

As soon as the smart money that's currently focused on VC finds decent returns in other, less risky investment vehicles, the VC money train will stop. It's just a matter of time.

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That certainly would cause the bubble to start losing air so-to-speak, but I'm not sure it would pop. If you think about it, Google and Facebook happen to be specific examples of companies that could have become billion dollar companies without VC investment. Other companies like Amazon and Tesla Motors are not.

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Google becoming a billion dollar company without VC investment is possible, but it wouldn't have happened nearly as quickly, and it's quite possible that it would have been acquired by Yahoo or Microsoft.

I disagree completely on Facebook becoming a billion dollar company without VC. VC funding is what allowed Facebook to monetize much later and gain huge cash reserves by selling tiny portions of equity at extremely high valuations.

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Were those cash reserves at Facebook used for anything besides hiring people to write advertisement monetization code? I was under the impression that the rate at which Facebook accumulated users would have been very similar to what actually happened had they just received angel investment and used the original employees.

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Yeah, but only until the GooBooks realize that they are just paying a huge premium for acquiring talent (and a worthless product).

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That assumes that the product is worthless and that they have alternative ways of acquiring equally valuable talent. The author of this article asserts that neither of those is true. The opportunity cost of developing the product in house is often comparable to or greater than the cost of the acquisition, and the talent acquired is not only really skilled but also already familiar with GooBook's way of doing things since they worked there to begin with.

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