Inflating the enormous ‘Social’ bubble

Twitter's Fail Whale

Joseph Kennedy, father of J.F.K., claimed he knew the rampant stock speculation of the late 1920s would lead to a massive crash. He said he came to the conclusion when he received stock tips from a shoe-shine boy. The shoe shine boy analogy has since been used many times to forewarn of impending bubbles – be they property or stock market related. Six years ago it was property and today it once again looks like another dot.com bubble.
The first dot.com crash of March 2000 was preceded by two years of unbelievable speculation by investors of all sizes and varying degrees of intelligence. As Ryan Allis noted: “By mid 1998 almost every young MBA in America either worked at a .com or was thinking about starting one up. Silicon Valley was Mecca, and hundreds of thousands of Americas has suddenly become Muslim.”
Sound familiar? Skip forward 10 years later and the big golden honey pot has become ‘Social’. Everyone suddenly wants a piece of a social network and if it aligns itself nicely to smart phones, the semantic web, the cloud and 4G, even better.
American bank JPMorgan Chase has just announced plans to open a new fund to invest in social media companies such as Facebook, Twitter and Groupon.
The bank hopes to raise $500 to $750 million from wealthy speculators, keen to own a chunk of the next Google or Microsoft. The cunning plan is to invest in social networks with ‘established business models’ and ‘good income streams’ before the companies list publicly.
Fair enough. Seems a reasonable thing to do. However, as any seasoned digital media watcher will happily tell anyone willing to listen – the foundations of all social networks are built on shifting sands. They will then point to the gloomy graveyards where Bebo, MySpace, Friendster, Friends Reunited, and iYomu lie in repose.
At present Facebook appears unstoppable, LinkedIn seems like great value and Twitter’s growth is astonishing. Groupon, before it turned down a $6 billion offer from Google, had already raised $950 million from several large Venture Capitalist firms. At face value it all looks extremely enticing in the digital garden.
AOL’s $315m buyout of the Huffington Post raised many eyebrows and not just amongst the seasoned digirati. Swiftly there followed more astonishing news – Facebook and Google have both wanted to buy Twitter for 18 months and the price being bandied about was $10 billion. Yes. Billion. For a company with a turnover of almost nothing.
Google, apparently has $35 billion to spend and is thought to be bulking up its ‘social layer’. Even still, would it not consider $10 billion a little steep for a company that still, after five years, has not come up with a decent business plan to make real cash?
Every week now it seems there’s a new social network launched with a ‘new’ USP. We have a social network just for tradesmen, another only for lesbians and another exclusively for people with 50 friends and an iPhone. There are many more. There are networks for stamp collectors, honey makers, train spotters and vegetarians. Once it has a silly name and a ‘potential’ audience of 100 million people a social network thinks it has a future. The two questions one should ask before gambling on any social network are – how will it make money and for how long? The trouble with social networks is that no one can correctly predict the ‘how long’ bit.