Investors Snap Up Share's In LinkedIn's IPO

LinkedIn is the first social networking site to go public. Renee Montagne speaks with Steve Blank, a veteran of Silicon Valley, about what makes Internet start-up companies worth billions of dollars, and when they are overvalued.

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RENEE MONTAGNE, host:

There's an investment frenzy on Wall Street right now. The networking website LinkedIn made its debut on the New York Stock Exchange today, and the demand for those shares is so high, the initial price has doubled.

LinkedIn allows users to post resumes and job credentials on the Internet and to connect with other professionals. It's the first of several major social media websites to go public.

And to talk more about this, we called veteran Silicon Valley businessman Steve Blank.

Mr. STEVE BLANK (Stanford, University): LinkedIn is an example of the first wave of companies in this bubble that have done something just simply astounding that's never been done before in the history of commerce.

MONTAGNE: Which is?

Mr. BLANK: Companies have gotten hundreds of millions of customers. Facebook has 600 million. It's not hard to imagine that they might have a billion in the next five years. LinkedIn has - you know, 100 million people have registered, 75 million have used the site in the last quarter. Since the invention of the wheel, we've never had the large number of people adopting a product at such a rate which such large numbers, that we might approach a significant portion of the people on the planet who actually use a product.

MONTAGNE: So pretty stunning, but do all those people translate into making money? And I'm going to say, LinkedIn, it's being valued at about $4 billion, Groupon estimated to be worth about $25 billion, Facebook $65 billion. Do the numbers of people translate into these numbers?

Mr. BLANK: Let me just put this in a different context. You know, when radio came out in the '30s and television caught on in the '50s, the way broadcast and radio networks made money was simply by getting a large number, millions of listeners and viewers, and they sold those eyeballs or those ears to a very small number of advertisers. And LinkedIn works exactly the same way.

MONTAGNE: Is it a big if that these companies can translate all these people that they connect to to advertising?

Mr. BLANK: I don't think there's any doubt that if you get an audience that advertisers want, that advertisers will pay for. I think what's going on in the Internet and these social networks are exactly what went on with, again, radio and broadcast television. And, in fact, it was the newspaper people in the '30s, '40s and '50s who were saying, well, it could never last and they could never make money.

I have no doubt that they'll make money. I think the real question for LinkedIn, and then Groupon and Facebook, is whether that their valuation will be worth how much money they're making.

MONTAGNE: Looking at the broader universal companies going public, are there as many going public now as there were 12, 13 years ago, sort of at the height of the dot-com boom?

Mr. BLANK: I don't think yet. But I think if LinkedIn and others that are about to go out, they're successful, will see the new wave of Internet companies start going public. And I think that's the beginning of the next bubble. The first 10, 20, maybe 30 companies going out will have spectacular revenue and profits. And the next hundred that will go out will also just have, you know, impressive numbers. When it becomes a bubble is the next 100 or 200 that follow them, and your grandmother is telling you that she's buying social networking stocks.

MONTAGNE: That's when to stop.

Mr. BLANK: Well, that's when it's already too late.

MONTAGNE: Yeah.

Mr. BLANK: So that's when the problem becomes: You can no longer tell whether these are good or bad companies, that you start investing because of the crowd. Rather, you started investing based on your analysis of the financials.

MONTAGNE: Steve Blank is the founder or co-founder of eight technology startups, and he teaches entrepreneurship at Stanford University.

Thanks for joining us.

Mr. BLANK: Thank you, Renee.

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