Is Social Media a Fad?

On January 19, 2011, InformationWeek article, Rajan Chandras posits whether the “Social Network Frenzy Signals Another Tech Bubble.” In short….No!

Before I get to why the fundamentals of “core” web 2.0, social media, social networking (insert your favorite buzzword here) are sound, it is worth getting the valuation issue off the table. I have been telling colleagues for months that I think the valuations on some of the high profile web 2.0 companies are absurd. In order of absurdity, I’d list Groupon, Twitter, then probably Facebook.

  • Groupon will go down as one of the biggest investor heartbreaks in history. They walked away from $6B!!!! cash from Google, instead of taking $900M in venture money in advance of testing the public markets. Some argue they can afford to do it because all the founders/early investors are now playing with house money since they cashed in early. Still….bad, bad bad. That business is going to get killed, in my humble opinion, not by one competitor, but death by a thousand cuts from the likes of LivingSocial, Woot, Yelp, Amazon, Tippr, etc etc etc etc. Anecdotally I don’t know anyone who gives a damn about where their deal-of-the-day comes from. Whoever has the best deals will get traffic. Some argue the data aggregation and analysis Groupon can perform is what provides the core value. Nonsense! This becomes a commodity function for any reasonably performing coupon shop in the space. Short the stock.
  • Twitter: It’s not a two-way communications tool! Email and Facebook are far more effective and appropriate for point to point messaging. Virtually no one cares about the minute by minute updates of people’s lives and thoughts. Twitter is a solid broadcast medium for sharing learnings and information with a wide audience. There is some really good analysis of why the user demographics on Twitter are limited….they spell long-term trouble. Teens, for example, never use Twitter. Additionally, star power was an early driver for Twitter traffic, and the trend shows that all the “A list” celebs have abandoned Twitter like a loser agent at CAA. Again, short the stock.
  • Facebook: Clay Shirky has some really good material on how “new media” is transforming society. It’s not a fad by any measure. Simplifying his research for purposes of this post, after the industrial revolution we divided our days into roughly 3 day-parts of 8 hours apiece: work, sleep and personal time. Old media (magazines, movies, radio and tv) took up the lion’s share of that time over the last 5 decades. The media business was largely built around ad sales. (subscriptions, movie tickets etc are another element)

Old media was one-way. Producer to consumer…no conversation, reaction etc. New media opened up two-way communication between producers and consumers. More importantly, it made the production of content easy enough for anyone from 5 years old to 95 years old… amateurish content in most cases, but it didn’t matter. The low cost of content production (a computer or phone) meant there didn’t need to be a financial ROI in most cases. People just want to be heard, to share, to participate. Our pent up desire to be social was unlocked. (there is a very similar social argument for the rapid growth of bricks-and-mortar companies like Starbucks by the way)

[As an aside, new media has been largely focused on consumer orientations or that 8-hour slot of time mostly identified as “personal” time. Increasingly, companies, like I’m involved with, are taking many of these same tools/models and applying them to the 8-hour time slot reserved for our work-life….(alternative term = vertical markets)].

The revenue model around this new Internet phenomenon is very UNLIKE the Internet bubble of the 90s. The traditional media dollars are being completely re-oriented away from the static one-way entertainment model to a dynamic consumer-driven model such as that exemplified by Facebook. Ad dollars are still higher on television than on the Internet despite more aggregate time being spent on the latter.

By the way, the InformationWeek article referenced $1.2B in revenue for Facebook. The most recent reports have them hitting $4B by year-end. While this is not efficient given 600M+ members, but it’s nothing to sneeze at either and it’s early.

The InformationWeek article hits at the very essence of the shift going on in technology and society. Is it a fad? While many of the business models out there is fluff, and there will be far more losers than winners, there is a fundamental shift underway and a huge and real revenue opportunity that goes beyond ordering groceries online and the Webvan busts of the 1990s. (a model that is now working extremely well for Amazon and others by the way)

Leave a Comment

Your email address will not be published. Required fields are marked *