The news of the potential financing comes just as Google (GOOG) is in negotiations to buy online retail discount coupon service Groupon for as much as $6 billion. Other large Web 2.0 companies have also been given lofty valuations. Facebook has a valuation of between $12 billion and $14 billion. The world's largest social network has over 500 million members. Twitter has over 100 million.
One of the issues raised by skeptics who believe that social networks are valued too high is that a relatively small number of users make up most of the activity at these sites.
The cautionary tale most analysts use about social network sites is the fall of MySpace, which has been losing users for over two years and is a money drain for parent News Corp (NWS). There are rumors that the media conglomerate may sell it. But who would buy a business that has such a rapid rate of attrition in revenue and users?
Many questions remain about the value of Web 2.0 firms, some of them have been asked about traditional media as well. How long will people spend on social network sites each day? To what extent do they take business away from one another? Has the field become so crowded that some sites are gasping for air? Or, are the millions of teenagers who spend hours a day on these social network sites enough to sustain them?