May
22

The Coming Social Media Bust?

Social Media Bust

Something has been sitting in the back of my mind lately. It largely concerns when the social media party will come to an end. I sincerely believe things will be radically different in three years. From a strictly business perspective none of the major social media players (excluding MySpace) are making money: Facebook, Twitter etc. They’re only accumulating more cost in the form of user registarations. Their income stream is close to non existent considering the hype surrounding their recent performance.

Don’t get me wrong, these are cool tools. I use them every day for business connections, personal learning and professional growth.  However we all lived through the dot-com bust  – and know that companies that don’t make money don’t survive. Simple as that.  If I may take you back to 1999, webvan was supposed to make going to the grocery store a thing of caveman past!

I ask these fundamental questions because I am starting to think 2010 will be a make or break year for these companies. Just thinking out loud here but quite frankly I’m not the only one thinking along these lines. Here is something Doug deGrood wrote on AdAge recently:

I’m no economist, but my understanding is, in order for a medium to have commercial value, it needs to be, well, commercial. Hey, this is America, baby, that’s how the game is played.

Who knows, maybe some really smart person will figure out how to open the revenue floodgates for Facebook, et al. Currently, the only thing they’re generating is more users, which requires more bandwidth, which requires more capital, which, at some point (soon?) will require a boatload of ad revenue to satisfy the VC folks who ponied up the money for this worldwide digital kegger in the first place.

I am not trying to suggest that social media itself will go away. I am confident that the social web is here to stay. What I am wondering about though is the viability of the current business model of the companies providing social media services. In the end the failure of their business model will fundamentally alter the social media landscape.  New companies will certainly appear but the environment will be completely different.

Only time will tell I guess. Until then follow me on Twitter!

Image source: stuant63 (Flickr) shared under creative commons.

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Posted by Shailesh Ghimire Facebook, Social Media Marketing, Twitter Subscribe to RSS feed
  • Great post. And I agree with most of your points. But Twitter seems like a standout with staying power (in some form). It's such a powerful communication tool (and marketing tool), growing exponentially, and (like email) has revolutionized the way we interact and communicate. After only a few months of tweeting, I'm finding it hard to envision a world without it (scary, I know :). "Free" email still exists. Gotta believe Twitter will find a way to last... (then again, I don't have any money down on it).
  • Shailesh Ghimire
    Joe - thank you for your thoughtful comments and insights. I will certainly check out the book you mention. Wealth conceptualization is certainly going to play a role in how social media shakes out over the next few years.

    Allen - Nice summary on WebVan and its failures. I'm intrigued by YourCrocer.com. I certainly agree with you on the failure of the business model.
  • Wait a minute. For New Yorkers, it still is primitive to go to the grocery store themselves.

    I founded http://www.YourGrocer.com in 1997 and, 2 years later, I tried to loudly warn people about investing in Webvan (instead of my bulk grocery service) because Webvan had this crazy idea that people should be able to order one can of tuna and one toothbrush and still have a delivery truck burn $20 in fuel and labor to deliver this to you at home. Not only was this unprofitable, but consumers consumed the products so fast that they felt unsatisfied with the service itself.

    Webvan crashed horribly while YourGrocer.com still survives as the bulk grocery service it started out as. When people buy $300 worth of groceries at a time, there is enough profit to cover the $20 it inevitably costs to deliver.

    A friend on Wall Street got this response from Webvan when he suggested they buy YourGrocer and adopt my model: "Why bother? We will crush them when we come to New York." Riiight.

    Moral of the story is test for management arrogance before you invest anywhere.

    Flash forward to 2009: I've been advising social network site owners that they have to bring profiles into email via add-ons like SenderOK. Some are listening. Some seem to be off partying.

    As Twitter is proving, you cannot just stay on the web. You have to be present in other places via apps, etc.

    The sites that will survive are the ones that will listen to others. Look at how many people some of the young moguls are following or not following on Twitter. Invest in those who are clearly open minded.
  • It's a good point - and good post - but for PR and marketeers the point should be that they are aware of where the culture and mass movement is and be ready to respond with what is appropriate for each medium.
  • Hi Shailesh,

    Very thoughtful and timely discussion. I think part of the answer will come in the form of innovations in how people understand and use property rights. This may not be apparent at the get-go, so please allow me to explain.

    At the heart of the Free and Open Source Software (FOSS) movement are a growing number of legal strategies to subvert property law against itself in a manner to leads to positive feedback loops for preserving the commons. This does more than lead to cool gadgets like the Creative Commons licenses themselves. It gets at the heart of modern-era capitalism and introduces elements of social responsibility into the mix at critical junctures.

    You can read Peter Barnes book, Capitalism 3.0, to get a sense of how this legal sanctioning of valuable commons is a transformative step in the evolution of capitalist systems. There is quite a lot at play here.

    I draw attention to this because the most profound shifts in commons-preserving mechanisms occur at the cultural (rather than legal or political) level. People begin to conceptualize property - and therefore wealth - in very different ways. Perhaps it will be the case that many social media platforms of today will go down with the collapsing capitalist system of yesteryear. It is too early to tell. But new quasi-capitalist structures are emerging that place value and wealth in the realm of community-oriented activities. When these structures become more stable (i.e. are less constrained by old capitalist institutions), they will become viable economically in the Share Economy that arises with them.

    The future of social media will involve significant cultural shifts in the meaning of wealth. If you want to know more about my thinking on this, check out this article I wrote a few months ago:

    http://www.cognitivepolicyworks.com/2009/02/23/beyond-scarcity-reinventing-wealth-in-a-progressive-world/

    Best,

    Joe Brewer
    Founder, Cognitive Policy Works

    (P.S. I am now following you on Twitter. If you'd like, you can follow me at http://www.twitter.com/cognitivepolicy.)
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