“Make no mistake, the valuations of these companies is certainly high, but the history of tech start-ups in the mobile space is very short, and based on what we’ve seen over the past 5 years, we should start to be less surprised,” said Ken Wisnefski, CEO of WebiMax, Camden, NJ.
“Yes, mobile utilization still has a ton of space to grow and there is still plenty of content to be moved over and innovation that we’ve yet to encounter,” he said. “While I see a disparity between companies wisely using funds and those wasting resources, as long as huge valuations are given to companies with no revenue and huge losses, more start-ups are likely to follow the user growth/0 revenue model.”
Per WebiMax’s Mr. Wisnefski, the business model for social media start-ups vertical is to first get seed or venture capital money and then focus exclusively on gaining users while having zero revenue generation. Over time, the goal is to turn users into actual revenue.
“Unfortunately these zero revenue start-ups that get any kind of ‘seed’ capital tend to throw that money at problems as they surface rather than truly identifying them, and find that money runs out rather quickly,” he said.