There is No Social Media Bubble

Posted by Marc Meyer on May 20, 2011

1 comments | 2231 reads

It’s sexy to say that the recent valuations of social networking companies and platforms is very similar to the dot com bubble valuations. Except, it was easy to see back then ( or is that now?) that commerce driven sites whose success was going to be reliant on transactions is a lot different than social sites and platforms with hundreds of millions of people with millions upon millions of daily visits that are reliant on nothing more than activity, conversations, shares, likes and content creation.

The implicit difference between the 2 bubbles, if we’re indeed going to call this period in tech history as a social media bubble, is that one was propped up on just bad business models and just plain dumb valuations, where the traffic had to buy product or the traffic had to go to a physical location whereas with all the social sites, the action and the CTR’s, its still predicated on traffic, but the traffic doesn’t necessarily have to buy something in order for the network to thrive.

It’s community based and people based and not sales based. Though the model to make money in social networks is still based on traffic pouring through the site- the need to separate someone from their cash isn’t as large a priority as it was in the dot com bubble days. Big diff

Republished with author's permission from original post by Marc Meyer.

Marc Meyer

As a Digital and Social Media strategist for Ernst & Young, Marc Meyer has been able to take technology, marketing and social media and meld it and simplify it in a way that makes sense not only for the SMB owner, but also the discerning C-suite executive of a Fortune 500 company.

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Bob Thompson

May 30, 2011

Bubble 2.0

Marc, I agree with you that this bubble is different. But it's still hard to believe that social media valuations will stand up over time.

Bubble 2.0 is largely predicated on advertising. If marketers don't get a return on social media advertising and take their money elsewhere, the bubble will pop.

Bubble 2.0 is also contingent on continued growth in social media usage. What would happen if people tired of all the sharing and turned their attention elsewhere? My 18 year old son is already telling me he is cutting back on Facebook.

Of course, when you're in a bubble it seems that the worst possible scenarios can't happen. But ask those "underwater" in their homes if bad things can't happen to house prices. They can, and they did.

Personally, I think social media is here to stay, but the outsized valuations are driven by speculation and greed. That's the same formula that created and eventually popped Bubble 1.0. This one will be no different.

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