The Web 2.0 Era Has Begun

By Aaron Pragnell | May 16, 2012 AAA
The Web 2.0 Era Has Begun

Recently, there has been an explosion of web 2.0 companies on the Internet. Many have transformed the way we share information across the web. Although many of these programs are free for the user, they are arguably some of the most valuable companies today. Facebook is set to go public shortly and is rumored to have around a $100 billion valuation.

To put that into perspective, Facebook would be worth more than Bank of America, McDonald's, double the size of Ford and roughly 10 times the size of Campbell's Soup. Facebook is the second-most viewed site on the web, slightly behind Google. However, the companies mentioned above are some of the most iconic brands in history, with decades of experience behind them. What are some of the major web 2.0 players and what price tags are investors giving these companies?

YouTube
YouTube is a household name when it comes to video sharing sites. With approximately 800 million unique visitors and over 3 billion hours of video watched monthly, YouTube has blossomed into the third most-viewed website in the world, according to Alexa.com. Purchased by Google in 2006 for $1.65 billion, YouTube is a cash cow, with revenues around $825 million in 2010. YouTube was one of the first web 2.0 companies to carry such a high valuation and has become a sort of role model for web 2.0 startups.

SEE: Conglomerates: Cash Cows Or Corporate Chaos?

Groupon
Launched in 2008, Groupon features daily deals of items to buy, things to do, places to eat and more. It has revolutionized the coupon business and as a result, the company transformed into a billion dollar business in only four years. On Nov. 4, 2011, Groupon went public, raising roughly $700 million and hitting a valuation near $13 billion, making it the largest Internet IPO since Google in 2004. If you think the valuation seems high, this even takes into account the fact that Groupon has yet to turn a profit. Despite having revenue around $1.6 billion in 2011, Groupon still lost over $270 million.

SEE: 5 Tips For Investing In IPOs

Zynga
Although this company may not be a household name just yet, the social games it produces are fairly well-known. Zynga is the provider of widely popular games such as Mafia Wars, FarmVille and Draw Something. Since its inception in 2007, Zynga has proven that there is big money in social gaming and that spending millions of dollars to create games on the traditional model may be outdated. Zynga games are played through platforms like Facebook, Apple iOS, Zynga.com, Google Plus and Android.

These games do not require you to spend hundreds of dollars on the console and additional money to purchase games. The games are free, but Zynga makes money through advertisements and virtual goods sold in the games. Although Zynga has turned a profit, in 2011 Zynga had negative net income of about $404 million, with revenue over $1.1 billion. On Dec. 16, 2011, Zynga shares hit the trading floors with investors praising the company with a $7 billion valuation, giving Zynga a higher market capitalization than Electronic Arts, which sells tangible games as opposed to virtual goods.

SEE: 3 Ways Companies Profit From Virtual Goods

The Bottom Line
Web 2.0 companies are transforming industries all across the globe, as they challenge traditional business models and make piles of cash in the process. The web 2.0 era has begun, and these companies should hit their stride after the Facebook IPO comes out.

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