Experts See Parallels Between Dot-Com, Social Media Bubbles

 

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Is social media another bubble just like the dot com bubble?  The article takes aim at the high degree of correlation that can be derived between the late 90’s and early 2000’s dot com bubble burst and the currently inflated theme of social media.  The key spark in this debate surrounds the deal between Facebook and Instagram where analysts see only that Facebook bought a company with no revenue and no monetary value for a billion dollars. In class we discussed the reasoning behind this deal. Could it be to beef up Facebooks asset sheet before going public? Could it be a fear based approach by Facebook? Was it just a shot in the dark? (Anyone download the new facebook camera app last week?)

The critical driver behind the bubble theme is money.  Social media ideas and products today are great and have been seen to bolster high levels of support by customers. But from a financial perspective, most business models are not build on a solid sustainable, strategic framework and revenue growth models are severely lacking. Companies are being valued based on their potential reach (what they could do) instead of real reach (what they are doing). To quote the article, “You will know a bubble when you see a brand new social network raise $20-50 million or goes public when you’ve never heard of them” 

But times are different, technology is different…the internet is different. The other side of this argument pertains to the fact that the internet was an infant in the dot com times compared to what it is today.  More importantly, the internet is more pervasive today than it has ever been in the past.  SM integration is so transparent these days that its almost become a normal part of society.  Bubble speculation always seems to show itself when large acquisitions are made. Looking back, Google’s acquisition of YouTube for 1.6 Billion (YouTube had no monetization stream at the time) caused the same type of conversation.

Question to the class:  Do you believe we are in a Social Media Bubble that will pop just like the dot com bubble? If so, what do you think will be the next step after the bubble burst?  If not, what is the reasoning behind this judgment call? Is facebook to big to fail for social media?

This article was 1 of 5 great articles surrounding the topic that can be found here:

http://www.readwriteweb.com/tag/bubble/

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One thought on “Experts See Parallels Between Dot-Com, Social Media Bubbles

  1. It sure sounds like a bubble… Just to compare the stock price of FB from the day it went public (5/18) it dropped from $38.00 to $27.72, which is 27% decrease in just two weeks. Looking at overall industry and related internet companies, one can conclude that the stock prices of all social media companies (including LInkedIn, GroupOn, Zinga) is down. It is a common theme at the moment. It is too early to tell and I hope I am wrong and it’s just a bump on the road…

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