If we look back: 2005 to 2007 was the heyday of user-generated-content companies (i.e. Mahalo, Squidoo). As the Google bubble ended starting around 2008 the excitement transferred to some of the leading UGC platforms that had grown into mass market distribution channels in their own right. Facebook mania in 2008 was followed by a similar wave of enthusiasm for the App Store around 2009.
All of these mini-funding bubbles focused on specific distribution vectors: Google, Facebook, the App Store. Central to them was a hypothesis in the potential for fast and easy exponential growth for companies, because this was how people justified supra-market valuations.
If the "social bubble" is deflating now, it's not because Facebook stock is falling so much as because it is increasingly difficult to achieve exponential distribution in these channels and nothing else has come along yet to replace them. And this is what Chris Dixon is saying as I understand him -- if people want to demonstrate that their service is genuinely viral the threshold is much higher since VCs are skeptics.
But advising someone who wants to go down the VC route to focus on revenues is still a bad idea, because you can't justify a supra-market valuation without the prospect of exponential growth. If someone is bootstrapping by all means collect money, but be aware that 10k a month is still only 1.5 million total valuation at ten times revenue, which doesn't give a lot of leeway for raising a ton of money by relying on fundamentals.
So as for the "bubbles" in valuations related to respective distribution platforms, you're spot on (I think a huge part of social gaming's explosive growth and valuation growth was a function of the Facebook platform, not of its own intrinsic value).
I also agree that the "social bubble" is deflating because the gold rush of everyone-being-connected-as-a-free-marketing-channel is largely winding down. Chris Dixon's post can reflect that new reality, but I would still be equally skeptical of a 10m user service with no revenue. (Of course, I'm not a VC.)
Where I disagree is in your last paragraph. Yes, I think a focus on revenues can be a bad idea for some businesses. But I think exploring or attempting revenue is a good idea for every business. If the numbers look bad, don't use them, but you need to try. Even if you are only earning $10,000 per month, that's starting from $0, so there will be a growth rate attached. This is a really good number to show VCs right now. Also, you can make projections of revenue growth with the assumption of your continued user base growth, and basically double-dip into your user growth numbers that way. I still think this will be a better way to fundraise in the next 3 years than ignoring revenue completely.
I agree the startup ecosystem would be better if there were more of a premium for revenues over traction, and hope things develop as you say, but don't think that describes the way things work right now for anything past seed-stage rounds.
All of these mini-funding bubbles focused on specific distribution vectors: Google, Facebook, the App Store. Central to them was a hypothesis in the potential for fast and easy exponential growth for companies, because this was how people justified supra-market valuations.
If the "social bubble" is deflating now, it's not because Facebook stock is falling so much as because it is increasingly difficult to achieve exponential distribution in these channels and nothing else has come along yet to replace them. And this is what Chris Dixon is saying as I understand him -- if people want to demonstrate that their service is genuinely viral the threshold is much higher since VCs are skeptics.
But advising someone who wants to go down the VC route to focus on revenues is still a bad idea, because you can't justify a supra-market valuation without the prospect of exponential growth. If someone is bootstrapping by all means collect money, but be aware that 10k a month is still only 1.5 million total valuation at ten times revenue, which doesn't give a lot of leeway for raising a ton of money by relying on fundamentals.