I have an increasingly uneasy feeling about the longevity of the many of the companies involved in the ‘social media’ phenomenon. Earlier this week – See Linkedin no bubble – I wrote about how, on the one hand, Linkedin success on the stock market had been exceptional. But on the other hand, how Linkedin was actually based on a timeless subscription based business model in an enterprise-based market (recruitment) which was not actually susceptible to fads.
Today, there were two news items which really interested me. Rory Cellan-Jones, the BBC’s Tech correspondent, undertook some basic research into the commercial effectiveness of the ‘Like’ feature and advertising on Facebook. See Value of Facebook Likes and adverts doubted. We have long had doubts on both – as readers know. But this is the whole basis of the Facebook monetising model.
Then we read of Digg.com being sold for just $500K – a minute fraction of the $25m+ which had been invested in the site. See FT - Remnants of Digg sold off. Facebook and Digg are connected in that Digg pioneered users ‘Like-ing’ blog articles but got badly hit when that feature was implemented to Facebook. This has echoes of what is happening with Groupon – a site that we have always rather detested. Groupon’s model is now falling apart – not least because big boys like Google have moved into the online coupon space. Social gaming is equally susceptible to fads as users have little loyalty.
The social media bubble is so much like the internet bubble of 1999/2000. We are sure that a tiny bunch of companies will survive and prosper to become the new Amazons. But the vast majority will either fail or be ‘rescued’ in garage-sales for a fraction of the investment poured into them. Of course, you only need one star in your portfolio to make up for a hundred ‘dogs’. But remember if you take the totality of the investment made during the internet bubble, as much as 90% had to be written off. If you were not incredibly lucky enough to select one star, you really were hurt.