Social Media Frenzy – Will the Bubble Burst?

Leading dot-com companies from 2000 have almost the same market cap as today’s leading social media companies…should there be worry?

A potential social media bubble has recently become a hot topic.

In a March 27th article from The New York Times, a correlation was shown between the dot-com bubble in the late 90s and today’s social media boom.

According to the article, five social media companies have a total valuation of $71.3 billion. These companies include Facebook, Twitter, LinkedIn, Groupon and Zynga. While none of these companies have gone public yet, this total valuation is similar to that of the top 24 dot-com companies in 1999, which totaled $70.96 billion in market capitalization.

Is social media another great bubble waiting to burst? Not yet, or at least not until everyone agrees that a social media bubble is present; are we headed in that direction?

As many similarities are drawn between today’s social media companies and the dot-come collapse, including many of the same analysts and venture capital firms, George Santayana, the Spanish American philosopher and writer, may have said it best when he stated, “those who cannot remember the past are condemned to repeat it.”

The focus of relationships

Putting the investing strategy of Facebook and Twitter aside, it’s important to ask yourself what the relative value of Amazon is to Facebook or eBay to Twitter.

When it comes down to structure, at the end of the day, Amazon is a digital bookstore and eBay is a digital flea market. Facebook and Twitter are more like virtual “water coolers” to discuss the day’s events and make plans for after work.

Social interaction is not new, nor are bookstores and flea markets. These websites are digital ways of enabling old behaviors online.

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Truth behind economic value

There is inherent value for companies like Amazon and eBay. Amazon is a massive online bookstore that morphs a place to buy print books into a larger, digital environment that can hold a much larger supply. eBay has morphed the concept of a flea market into a digital haven for any product you’re looking for.

There is the opportunity for direct revenue generation at these locations.

On the other hand, social media is the equivalent of a biplane that flies over a beach, displaying a banner for a restaurant. It holds a message that resonates the best about what to do when the sun goes down…but it doesn’t give insight on what car to buy, what seminar to attend or what knitting needles to purchase.

Social media is much harder to monetize and insert yourself in to.

For instance, although people are spending more time on Facebook than they do on Google, Facebook has been valued at $1 billion, while Google is worth 30x that.

The activities behind search and email have a commercial framework designed for monetization. SEO has replaced the YellowPages as searchers are typically looking for an answer to a problem, which they are often willing to pay for. People subscribe to email newsletters because they are pursuing something they are passionate about and committed to.

The real point of social media

Social media is the new public relations…it’s about getting the message in front of people and working on branding initiatives.

If you go to a baseball game, you will see advertisements on the outfield wall. You surely aren’t going to the ballpark for the ads, but you will see them regardless. Facebook operates in the same manner.

No matter how segmented your social media marketing efforts are, the larger problem is with contextual intent. You cannot blatantly market your products through social media without contention from users.

For all publishers out there, don’t for a moment think that social media will replace SEO or email marketing. Social media is nice to have and helps share your content, but it doesn’t generate revenue like the other online marketing solutions like SEO and email.

If you look at the time and money being spent within your organization, 40% should be dedicated to SEO, link building and related activities. This will help high-quality people who are looking for your content get directly to your site.

Another 40% should go towards email, with 10% for social media marketing and another 10% for everything else.

Never forget the importance of delegating time to the marketing efforts that make your organization money.

Comments

    Well, the analogy of a plane dragging a banner is fairly correct, but the difference is that any Joe and Betty can have this plane and advertize their business. So that’s an added value from a marketing perspective.
    From SEO perspective, social media is very important. First, it helps for instant site discovery, and then it also helps for ranking. Just a week or two ago, I read that Google made it public that sites with a significant social media buzz that comes from Twitter and FB influencers will add value to the overall PR of the site.
    Social media also provides for quick and easy word of mouth advertizing with the Tweet, Like, Share buttons we place on each webpage. And it works well. So, from my perspective, social media does provide value for marketers, and for users (personal branding/bragging) so it’s not a useless invention.
    About the worth of it, the 30×1 ratio between Google and Facebook’s value states the obvious. But that doesn’t mean that there’s no value in social networks.
    Lastly, Content Marketing and SEO are important, and Social Media can be considered an integral part in off-site SEO/link building:
    Research the Topic -> Find Action Keywords -> Create Content -> Spread the Word.

    Reply

    A) Amazon is much more than an online bookstore, as they sell computers, electronics, toys, and an array of other products. Their recent surge in valuation is credited to their transition into cloud services, not because the newest kindle is $114.

    B) Facebook valued at $1 Billion? The most recent valuation of Facebook I found was $85 Billion in late march. Google’s market capitalization is currently $170 Billion (4/20/11), so not sure where the 30:1 value ratio is coming from.

    C) Social Media is without a doubt currently in a bubble. That doesn’t mean that Facebook, LinkedIn, Groupon, and Zynga are all going to pop, although a significant dip for them could be in the works. What it does mean is that hoards of venture capital money are currently seeding start-ups trying to compete in this space, and the vast majority of these start-ups will fail as profitable businesses (hence the comparisons to the dot.com bubble). But that doesn’t matter for VC’s, because all it takes is the next big winner to make these investments work. Of course, failure to seed the next big winner will result in failure for this current push from VC’s.

    D) Email marketing > Social media marketing? Depends if you are B2B or B2C, and what service or goods you are offering/selling. But keep in mind that Facebook’s enormous valuation isn’t because there are 600 Million registered users. It’s because the 150-200 Million users that are interacting with Facebook on a regular basis are constantly increasing the amount they post, “like” comments or companies, and in general, interact with the platform. The more time you are on the Facebook, the better the chance you will be reached, either directly through a business/company you “like” (read: “subscribe to”) or through the most highly-targeted platform for advertising (based on individual interests and demo’s). Guess what the open rate is on direct marketing through FB: 100%, it appears directly in your news feed. What is your email open rate? What is your email click-thru rate? The masses are now “hanging-out” in cyberworld, and cyber-word-of-mouth is stronger than any promotional email. The smart money recognizes this potential, hence the bubble.

    E) Lastly, a message to all publishers: Content isn’t what it used to be, and if you want to survive, you must focus on your product. Increasing your eMarketing efforts is important, but if its for a product that is not evolving or satisfying the tastes of a world where Youtube, Facebook, and Netflix are booming, these new efforts won’t matter. Your product will not be consumed.

    Reply
    Lars T.

    Although I agree with the overall point you are trying to make about social media and the dot com bubble, I think it´s important to point out that a USD in the year 2011 does not possess the same value as a USD did back in 1999.

    Also, I feel quite sceptical towards recipes in terms of “spend xx% on this and yy% on that”. Don´t forget that the optimal media/marketing mix is very different for different products/services.

    To me, “social media” can be thought of as “transparent customer service”. For a brand, it´s great to be out there where the consumers are and serve their needs for information about your brand in a transparent way. It promotes honest, good brands willing to provice the best information and relationship to their customers and prospects. It helps drive competition to do good stuff which indeed is great for everyone.

    So, do we have a bubble? Definitely, but it´s just one of quite many financial bubbles right now…

    Reply

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