Social media websites are great if you want to read real-time updates
from Washington political reporters who don't know how to drive in the
snow, or would like to buy 50 dollars worth of Chinese food for 20
dollars. But is there really any money to be made in social media?
Recent valuations of Twitter
($8 billion to $10 billion), LinkedIn
($3 billion), Foursquare
($250 million) and Groupon
($15 billion) suggest that there is--or at least that people think there is.
of course, was the reason people thought they'd get rich investing in
an online pet shop
during the dot-com bubble of the early 2000s. Those dreams didn't pan
out, and Nasdaq was effectively crushed in the process. Is this new tech
economy made of stronger stuff, or is irrational exuberance from
investors paving the way for another Silicon Valley bubble?
challenge facing social media companies today is the same one that
plagued the dot-coms in 2000: where does your revenue come from? The
inability to answer that question caused the first bubble to burst, and
Business Insider blog Hidden
says monolith Facebook is struggling with the same basic problem. Unless the company "decides to start selling profile data like
they are big brother," it will remain at the mercy of ad revenue. The
San Francisco Chronicle's Ryan
notes that while "most social media firms are still trying
to figure out how to capitalize on their vast user bases," the process
is only hindered by young management teams "wary of killing its cult
status early in its development."
An emboldened Fed might
actually be what prevents a social media bubble from emerging, writes
. Because "inflation was tame and productivity strong during
both the dot-com boom and the real estate bubble" the Fed "felt little
pressure to make major shifts in monetary policy with inflation
quiescent. Yet the toll when the bubbles burst was huge." It's the fear
of another crippling economic downturn that will encourage "a far
greater emphasis on regulatory initiative" and prompt the SEC to "step
up its scrutiny of private investors and company valuations in the
growing trading market for private share offerings of such marquee
high-tech companies as Facebook, Twitter, and LinkedIn." His conclusion, then, seems to be that social media
might not be the way of the future, but at least investors will know
it's not a shell game.
Want to add to this story? Let us know in comments
or send an email to the author at
rgustini at theatlantic dot com.
You can share ideas for stories on the Open Wire.