Lovely, lovely essay by Tim Worstall, which starts out with the usual speculation about Facebook valuations and winds up in a really interesting place, summarised thus:

And that’s the little secret about infrastructure that is so little understood. It is not true that having infrastructure makes us or the society richer. It is rather that using it does. And we usually don’t know how to use it until someone has gone and built a lot of it, people do that curious shaved monkey thing of experimenting with it and then we all find out. This is true of most inventions: it has been said that the biggest social change that the Model T brought was that women were less likely to be virgins at marriage. People worked out what to use the back seats for pretty quickly. The bicycle has been called the greatest contribution to the health of the working classes ever: it allowed courting outside the home village for the first time (amazing how inventions and sex seem to go together, eh? The first social network, Friends Reunited, is said to have caused a bubble in the divorce rate) to the benefit of the next generations’ genes.

So these bubbles, they’re not all bad. They provide an excess of whatever it is, which we then play with until we’ve worked out what to do with it. What we do with it is what allows the advance in wealth, even if those who built it for us have gone bust.

Nice, perceptive piece in the Economist.

SOME time after the dotcom boom turned into a spectacular bust in 2000, bumper stickers began appearing in Silicon Valley imploring: “Please God, just one more bubble.” That wish has now been granted. Compared with the rest of America, Silicon Valley feels like a boomtown. Corporate chefs are in demand again, office rents are soaring and the pay being offered to talented folk in fashionable fields like data science is reaching Hollywood levels. And no wonder, given the prices now being put on web companies.

Facebook and Twitter are not listed, but secondary-market trades value them at some $76 billion (more than Boeing or Ford) and $7.7 billion respectively. This week LinkedIn, a social network for professionals, said it hopes to be valued at up to $3.3 billion in an initial public offering (IPO). The next day Microsoft announced its purchase of Skype, an internet calling and video service, for a frothy-looking $8.5 billion—ten times its sales last year and 400 times its operating income. And those are all big-brand companies with customers around the world. Prices look even more excessive for fledgling firms in the private market (Color, a photo-sharing social network, was recently said to be worth $100m, even though it has an untested service) or for anything involving China. There has been a stampede for shares in Renren, hailed as “China’s Facebook”, and other Chinese web giants listed on American exchanges.

So, are we in another bubble? Answer: yes. It’s different this time, of course. (It always is — which is why people get fooled.) The Economist points out that one new factor is the relative importance of ‘angel’ investors — wealthy individuals who made money out of the last tech bubble — rather than traditional venture capitalists. Another is the arrival of new kind of investors who want to get in on this tech thing. Trouble is: they don’t know the first thing about it.

When it comes to investing in more established companies like Facebook and the bigger web firms, traditional venture capitalists now face competition from private-equity companies and bank-led funds hunting for profits in a bleak investment environment. Gucci-shod leveraged-buy-out kings may appear to be more sophisticated than the waitresses buying dotcom shares a decade ago—but many of the newcomers are no more knowledgeable about technology.

Yep. So it’ll be nice watching them take a bath.

More from Good Morning Silicon Valley.

Here’s a somewhat clearer look at how much money Facebook is making, according to the Wall Street Journal, which cites a 100-page document given to potential investors by Goldman Sachs: For the first nine months of 2010, the Palo Alto company’s revenue was $1.2 billion, its profit $355 million. And by the way, the same document shows that because it expects to surpass the legal threshold for number of private investors, Facebook will either have to go public or disclose financial information by April 2012, which excites Silicon Valley and others who have been waiting for the lackluster IPO market to make a triumphant return. The New York Times’ DealBook likens the interest surrounding the possible IPOs of Facebook and other social networking companies such as Twitter and Zynga to the dot-com boom of the 1990s.

This corrects a misapprehension of mine. I had thought that if a company went over 499 shareholders, then SEC rules would oblige it to float. But that’s not the case. It either has to float, or publish more detailed financial information.

The $50 billion valuation triggered by Goldman Sachs’s investment in Facebook has created another feeding frenzy. The Guardian has a nice piece by Jemima Kiss which manages to steer clear of most of the hype. Meanwhile, here are two charts which may help to put things in perspective.

The first shows the way valuations of Facebook have fluctuated over time.

The second — more sobering — chart shows revenue per user for different online services.