LinkedIn leading a new dotcom style boom - but will it bust this time?

More than a decade after the dotcom crash of 2000, investor enthusiasm for technology stocks is booming once again but a decade on does it make more sense?

Since last December, when the social shopping site Groupon rejected a $6bn acquisition bid from Google, the sector has been at the centre of speculation, and with it come fears that Silicon Valley could be inflating a multi-billion dollar social networking bubble.

First, it emerged the professional networking site LinkedIn was mulling over plans to go public (which it is), then those lovely people at Goldman Sachs offered a $450m stock allocation of Facebook shares that valued the firm at more than $50bn and prepared the way for a public offering in 2012.

Now that Facebook boasts 600 million users there is a growing belief that genuine change in the way we communicate and consume is under way through social networking.

And since almost anything that can be termed 'social' is hot property, others including Skype  - which was bought and then sold by online auctioneer eBay but is now primed for flotation this year - Twitter, Tumblr, Zynga and Groupon are all headed toward public offerings. But this apparent rush to market is already creating stresses between companies and bankers.

Relations between Goldman Sachs and Facebook soured after Goldman was accused of offering preferential terms to its partners and then closing the offering early. The situation drew the scrutiny of regulators who are now looking into whether Facebook has exceeded the maximum number of investors it can have without going public or making public financial disclosures.

Moreover, Facebook's first foray in to the public markets risks being tainted following accusations of elitism levelled at Goldman, one of Wall Street's most storied investment banks.

According to former Google executive Lise Buyer, Google wanted to give all investors equal access to the company when it went public in 2004. 'Facebook has taken a 180-degree different approach so far,' Buyer said.

Then late last week Goldman pulled its offer of up to $1.5bn Facebook shares to US clients after it was effectively blocked by Securities and Exchange Commission regulations. However, it concluded that 'the level of media attention might not be consistent' with completing the deal. International clients will still be able to buy the stock, however. But blaming the media hasn't washed and the episode has given Goldman a black eye, as well as forced Facebook down a path it may not have been planning to take.

Others planning to go public are undeterred. LinkedIn, valued at $2bn, appointed Bank of America Merrill Lynch, Morgan Stanley and JPMorgan Chase as underwriters for the deal; Groupon, which recently raised $950m in new financing and is looking at a $15bn IPO later this year, is said to be choosing from as many as six underwriting banks.

Nevertheless, a question mark hangs over these valuations. Despite fears that the tech sector is entering a 'Dotcom Mania 2.0', Facebook generates revenue comparable to Google in 2004. And Facebook is now larger in terms of traffic than Google (valued at $180bn) and twice as valuable as Google was when it went public.

Google, which has been struggling to stem an exodus of engineers to social networking firms like Facebook, responded to the growing competition last week by replacing 55-year- old CEO Eric Schmidt with 37-year- old cofounder Larry Page.

Analysts say Page was brought in to run the company more like a fast-moving start-up while founding partner Sergey Brin will focus on new products. The shake-up comes after Google failed in a bid to acquire Groupon for $6bn in December.

The search giant is now looking to launch its own social shopping service, Google Offers.
If, as Facebook founder Mark Zuckerberg predicts, one's online behaviour will soon by guided by the habits of one's friends and not complex algorithms, with all the opportunities for advertisers that suggests, then it's possible Goldman's $50bn Face-book valuation is conservative.
Moreover, other commentators say, we shouldn't worry about dotcom crash 2.0: this isn't 1998 or 1999.

Firms looking to go public have operating histories, revenues and skilled board members experienced in the internet economy. Further, consumers are increasingly comfortable with spending on the web.

According to Barclays Capital, technology IPOs made up about 10pc of US deals last year against 5pc in 2009. That figure could reach 15-20pc in 2011.

'We're in an entirely different place, as an industry, than we were ten years ago,' Battelle adds. 'I very much doubt we'll see the same mistakes made again.' Oh yeah!