Whenever a technology company goes public I am reminded of Facebook investor Peter Thiel’s 2007 comment, “there is absolutely no bubble in technology.” It’s a statement admirable for its trenchancy, but it reeks of hubris. Whenever something, in any field, is promised as ‘the next big thing’ it’s time is limited and, often, a source of embarrassment once the novelty wears off. Think Disco, Hair Metal, Atari consoles and furbies – none of which can be enjoyed now without a sense of irony or nostalgia. Remember Friends Reunited? How quaint.
In the same way critics of social media have been waiting for the moment when users sit up and realise they’re wasting their time playing pointless casual games and instant messaging people they see on a regular basis. Be it for discovering music, videos or people, social networks have sold themselves on being ‘cool’ instead of commercial for the best part of a decade. This works fine in the short term, until the realities of having to develop a commercial strategy set in. As far as the sceptics are concerned, it’s all going to pop – soon.
The naysayers may have a point. With MySpace up for sale; Bebo sold off for a pittance; Twitter and Foursquare still relying on venture capitalists; and the finances of Facebook still a mystery, it’s not unreasonable to suggest that social media has failed to make a commercial case for itself. With websites relying on crowdsourced reviews (imdb, menupages, YouTube), and group purchasing websites like Groupon and Livingsocial providing incentives for businesses it’s arguable that the best bits of social networks have been appropriated by smaller entities less interested in harvesting your personal information for marketing purposes.
Momentum
So is there a bubble in social media? One key indicator is the performance of brands that aren’t relying on funding rounds to maintain momentum.
One case in point is business network LinkedIn’s initial public offering (IPO) of 7.8 million shares took place last Thursday, with semi-predictable results. An opening price of $45 per share was flagged on Wednesday, by Thursday afternoon the asking price was as high as $122.70 per share before settling down to $94.25. That single day of trading valued the company at $9.6 billion. At time of writing, shares were trading at $93.09 – not bad for a network with a user base of 100 million (about a fifth of Facebook’s) and a rep for being about as much fun as a bankruptcy hearing.
There is more to the feverish trading in LinkedIn shares than bandwagon jumping. Firstly, LinkedIn is one of the more mature social networks on the Web. Active since 2003, around the same time as MySpace was taking off LinkedIn’s progress has been measured without being remarkable. Unlike its bratty music-oriented contemporary, LinkedIn has never been cool; in fact it’s only recently been considered more than a repository for virtual business cards. Glossy it may not be but what LinkedIn is, however, is profitable.
In 2010 LinkedIn made a net profit of $1.85 million (gross revenue $161.4 million) through a combination of classified advertising (via Google AdSense) and a premium charged to recruitment firms who want to headhunt users. Again, the numbers aren’t startling, but they are steady. The service is also starting to mature thanks to integration with Twitter, discussion forums and content sharing in its LinkedIn Today news service where articles from around the Web are aggregated by users’ networks.
LinkedIn’s success (maintaining that share price will require some doing) is one thing but the biggest test of social media’s robustness will come in 2012 when, it is rumoured, Facebook will have its own IPO. Reports from the Wall Street Journal suggest Facebook is profitable, and hence mature enough to maintain viability.
On this form, having some networks thrive while others disappear would indicate there is not a bubble in social media but a tide in a persistent state of ebb and flow. In many ways that’s a lot more dangerous.
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