Although I'm up to my ears in projects and deadlines, I felt compelled to blog about an article at Slate Magazine titled
"$1 Billion for Facebook? LOL!" The article questions whether the current social marketing mania shares eerie similarities to the late dotcom bubble:
The Dow's at a record high, youthful entrepreneurs are minting dotcom fortunes, and big media types are talking about "monetizing eyeballs"—close those eyeballs for a moment, and it almost seems like 1999. Back then, big media companies threw huge amounts of cash at the hot new things on the Internet: portals and online news sites that had impressive traffic figures but not-so-impressive profit-and-loss statements.
Among the similarities between today's social networking craze and the earlier dotcom crash and burn, Slate cites:
- Lots of traffic but little profit
- Company value based on number of users
- Large media companies greedily grabbing up sites
What's different this time around? According to Slate:
- A more mature online advertising market, meaning a willingness to advertise on increasingly popular social networking sites
- Better business models
- Hesitance/skepticism about the success of the next big thing (in this case, social networking)
The article brings up some astute comparisons and makes some good points. What do you all think? Are you plugging your ears in wary anticipation of the next dotcom burst? Or do you think that lessons have been learned and history won't repeat itself this time around?
About rebecca —
Rebecca Kelley is the content marketing manager for Intego, a Mac software company. She also guest-blogs/freelances at various places and runs a couple hobby blogs for shits and giggles.
Many of these sites are not paying high costs to operate. It's only a matter of time for them to monetize the traffic that they have.
Wikipedia's Social Networking entry currently has 70 different SN sites listed, and that's not the most complete one I've seen. https://en.wikipedia.org/wiki/List_of_social_n...
The most intersting entry?
Gothic industrial culture - aka VampireFreaks.com
Talk about niche SN's...
Don't be surprised. The SeaGoth (Seattle Gothic) group on ezBoard was one of that site’s most prolific groups before most members migrated to LiveJournal. Here in Seattle many who identify themselves as Goth work at Amazon, Nintendo and Microsoft as well as a slew of smaller tech companies. The Mercury, a Seattle Gothic-Industrial nightclub offers free WiFi and you will often see someone with the latest PowerBook working on a complex design project. (Web Tourism Highlight: https://www.granolagoth.com/ ) Multiply this by the number of major cities in the USA, perhaps the world, and you have one heck of a market.
To piggy back on EricW's comment...a current example is Dogster: social networking for you and your dog. He's right, niche social networking WILL happen (its already begun!)
I think that anyone who thinks MySpace or Facebook are winners in the long-term are fooling themselves. In the last year spammers have started to really hammer both services and with Facebook opening to the public and having an API, it's going to be spam city before you know it. MySpace has no Matt Cutts and nobody really wants to talk about it because they think 30 million users or even 100 million users... and their eyes are filled with dollar signs.
However, the nieve youth will soon catch on that those seemingly hott girls are just fake pictures on automated MySpace bots. Think I'm joking, there is a whole SEO Rockstars episode on the subject of MySpace and Web 2.0 spam. By now there are probably millions of fake profiles out there. As a programmer I can tell you that Facebook putting out an API is going to make it even easier to build bots.
What's worse is that the people who use social networking sites like MySpace are HORRIBLE as far as an advertising audience is concerned. Media companies have figured out that it's more cost effective to setup a MySpace profile to promote a movie than it is to actually pay for advertising on MySpace. Sure, MySpace gets a lot of traffic, but it's not traffic that converts well for advertisers. Shoemoney, one of the few people who I've ever heard talk about actually advertising on MySpace, basically said that the clicks and impressions are great, but that conversions are horrible. I've also heard the same thing said of Facebook by others.
The bottom line is this: social networking is a big deal now, but that doesn't mean that it's profitable, it just means that it's big. The money is social networking is not in the networks themselves, but in value-added services and features that are created around social networking(ex. myspace layout sites are making a killing right now). Also, there is too much money invested in social networking by major comapnies for them to just go away overnight when the bubble bursts, but MySpace and Facebook will eventually die a slow death that will probably mimic that of AOL.
Advertisers need to learn how to exploit the value of social media not in impressions and clicks (though there is tremendous value there to brand advertisers) but in the viral power of these networks. MySpace sells music to kids now the way MTV did in the "old" days. Actually, they do it better. Case in point: Arctic Monkeys. Lots of folks thought MTV was a fad too...and for that matter, rock and roll. Social nets capture this "word of mouth" power in a way unimaginable even ten years ago. News is only starting to figure out how to optimize MySpace cross media with their other units.
The thing to keep in mind about Facebook is that as an outside we can scoff at $900M valuation but to someone like Yahoo I think it's clear that's it's more valuable to them than many others. Yahoo needs to expand its inventory. I hope Yahoo buys Facebook and exploits the ability to use their ever improving technology to deliver more ads that are more relevant. That's a win for all of us.
Rand- I like your examples. I'll offer up AOL as one I think is also analagous.
Excellent point, Jonathan - just as Hollywood has to learn to use product placement and DVD sales to maximize its revenue (rather than relying wholly on box office totals), so too must advertisers learn to use the viral power of MySpace (or Digg or Facebook or StumbleUpon).
Right on the money.
This is absolutely the case. There are plenty of ways to generate traffic utilizing the social element of MySpace. I don't see this translating into revenue for them. However, it does translate into billable hours for development and consulting.
I'm surprised at how poor the ad quality is on some social networking sites. Especially MySpace. They know my age, where I live, my interests, my marital status, etc., yet the ads appear to be run of site filler from True.com more often than not. A LOT more money could be made by improving relevancy.
Come on folks. This all has to do with the rule of commoditization. The more readily and easily impacting information is made available to the purchasing market, the less valuable that information becomes. Socialization (the ability to be part of community) is at the very base of human nature therefore it will strongly drive markets as long as markets are available.
This article hits it right on the head. Social networking is what makes this whole internet expierience real for users. My networking solutions company has done the reacheach and we found that Giazone.com once complete will be the next big sensation to hit the networking platform. This sould be one company to reckin with.
check out helloworld as a different form of social network
Another thing is there are no longer fast ipos, which doomed the first dotcom bubble and now investors need a clearly defined exit strategy that doesn't just involve going public.
In addition to all of that, there is one dispute-able point of comparison. Its a commonly known fact that companies over the last decade have realized the importance of intangible assets having more worth than the tangible ones (i.e. better employees and management and more customers are more valuable than how many offices, trucks and staplers the company has).
The problem is the focus on intangible assets can be taken to the extreme.... I'll give anyone reading this 3 items to consider...
https://arstechnica.com/news.ars/post/20060807..." rel="nofollow">Google offers $900 million for MySpace search and advertising
ok, so MySpace reportedly attracts new registrations at a rate of 230,000 per day
How many people are born each day?
The equation for this case is: fb := pp(1+pct)yrs
For this problem we use 5.5 billion for the population, 1.7% for the annual rate of increase, and 1/365 for the argument of years, since we want the rate of increase per day. The result is just over 250,000 births per day!
We're supposed to believe that MySpace gains just 20,000 new users less than people born on this entire planet? Advertisers and investors are over-reacting about the amount of supposed users participating on these sites, but that also doesn't mean there isn't any value there either. Draw your own conclusions.
Who's to say the values are outrageous. I think you can make a decent arguement on either side. Remember, it was not too long ago that "experts" were saying News paid too much at $580M for Intermix. The stock went down for months after the acquisition.
Now however News' market cap is up about 26 Billion dollars since the purchase to around $76B. Some might say MySpace could be worth, about...$26 Billion instead of $12B and still have a case. :)
The big risk for MySpace as EricW mentions is users going vertical. In fact it's a risk for every major search engine as well. Their fortunes are tied to user behavior...and users tend to gravitate towards content that interests them. I do think the SE's understand this however...especially Yahoo. But don't put anything past Rupert Murdoch. No one really thought he could pull off a 4th network either.
Jonathan - I agree that many social sites are not neccessarily totally overvalued, but MySpace would do well to remember what happened to Friendster. Even though millions had profiles there, they were happy to re-create them at MySpace because it offered something better. If someone else can do social networking for the MySpace generation, they could easily lose those users.
$12 billion would be a lot to pay only to be abandoned in the next 2-3 years for a better widget.
Social networking is here to stay. It will evolve and go vertical, already has with social shopping sites. The generic one-for-all social networking sites wont make it. If I were starting a social site today, I'd find a niche and go deep and fast into it. That's where the longevity will be. It's just another part of the long tail metaphor. A social networking site for fencing enthusiasts? Or botanists? Yep. Watch.
Eric
You are right, social networking is not going away. It will continue to evolve.
I have to say that the boom in social networking makes me laugh sometimes. Platforms like E-groups and phpBB were part of Web 1.x and many of us used ListServ long before that even. Take the recent news about using RSS to dynamically update advertising content. I bet many SEOmoz readers have used Includes to do similar tasks for years now.
I know....let’s start an open source project to create a Web 3.0 platform that will self-evolve and dynamically stay ahead of the latest Internet trends and fashions. We can call it Darwin.
I agree here, too. No chance social sites are going away... In terms of valuation based on eyeballs; I'm skeptical.
I do not see social network going away or popping anytime soon. Most of my friends do not know what SEO means, but they sure know what myspace is. I hear friends saying “Did you post the pictures to your myspace account yet?” “Guess who I have on my myspace friends list now?”
I actually saw a shirt for sale that said "Your Mom is in my Top 8" It had me laughing all day. On serious note, my friends take pride of who is in their top 8.
I believe social networks will be around for a long time because of the younger crowds growing up with it.
I can see it now (cloudy fog enter) 50 years later ... Jonny did you post the pictures from Sunday’s bingo game on myspace yet? (cloudy fog exits)
I sure as hell won't be using Myspace when I'm 73. I already feel too old to be using it. It seems to be dominated by high schoolers.
CNNMoney Article
Bah, phooey I say!
There's definitely lots of money to be earned from huge user databases especially if enough demographic data is being gathered, which one would think it is on such sites.
I guess the big question is whether they're able to really monetize the user bases, or if they'll end-up overdoing it and lose the users, or if they won't succeed in going far enough to really make money from the users.
Rebecca, nice post. I'm working on how this effects the whole idea of viral/social marketing (or if it doesnt). Should be posted up on my blog very soon.
Counting how many social-whatever (bookmark, network etc) exists, there *has* to be consolidation in the market. In a frontier setting, there are always winners and losers in the end.
I'm looking forward to reading your take on the issue!
The signs are already on the horizon and it is not limited to social networking; one only needs to look for them. Boeing gives-up on its on-flight Internet service, ESPN discontinues its sports cell phone service, social media domains appear for sale on E-bay…
Just like the bubble burst on Web 1.0 there will be a flattening of Web 2.0. This is nothing new to business. For example, once there were many large oil and steel companies. Now there is only a handful. The difference is that this is happening in our lifetime, not in the history books and that new technologies and methods of communications 1) makes it easier for more people to be aware and 2) compresses the time frame.
Web 2.0 is over. For now, companies are not creating original uses or fresh business categories. Web 2.5 is here. The companies that will survive are the ones combining existing ideas and technologies to generate new or combined functionality that can be successfully monetized.
I’m not saying that real true new ideas being turned into fruition is dead. I know that when I least expect it something unexpected will appear. But the next wave (read large grouping) of real originality will be Web 3.0.
We are absolutely in a bubble. History always repeats itself and some of the latest headlines make me cringe.
It's like when people just a few months ago didn't believe that we were in a real estate bubble. Well, we were.
I don't think the landing for bubble 2.0 will be as severe (unless everybody loses their head again) but there's a lot of uncharted territory in front of us that makes it easy for people to really overshoot assumptions.
All considered, it does seem rather amazing that sites like MySpace, basing their worth solely on the number of users they have, are worth billions of dollars. Billions! The real estate comparison seems good... a box on a street corner in Seattle can't cost $500K forever. Can it?! The last few weeks would suggest not.
As far as the longevity question goes, this could be largely unanswerable. A lot of it depends on fashion: not long ago, the biggest craze in electronic networking was AOL and MSN's messenger services. Although they're still widely used, "commenting" on social networking sites is now taking over from leaving your friends IM messages when they're not sitting at the computer. We can try to predict what will capture people's imaginations next: Those of us who predict correctly stand a good chance of becoming the next Zuckerberg.
Basically, I wouldn't "put my money on" the social networking bubble. Everything has its ups and downs, and if you have millions of dollars invested in a "down", you'll be deleting Tom from your MySpace friends list quick-smart.
The real reason FaceBook opened up was to boost its traffic in anticipation of a deal with Yahoo! Inc. FaceBook has signed a no shop agreement with Yahoo! Inc which means it is in exclusive negotiations with Yahoo! Inc. Of course, no shop agreements have expiration dates. You can just bet that FaceBook, aka Mark Zuckerburg, wants to keep the Yahooligans hot and heavy while the corporate development is pouring over the traffic numbers from FaceBook.
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I think you may be over simplifying the situation a bit. IMOHO something as major as opening Facebook.com would have had to have been in the works well before they entered into serious talks with any company. Why do I think this? First, it requires major planning, investment, installation and testing. That takes time. Second, anything that could have a major effect on the value of their business would have to be disclosed. If Yahoo! Was uncomfortable either Facebook.com would have chosen not to move forward or Yahoo! would have declined to commit to a no shop agreement. Of course I think Yahoo! is smart to have entered the no shop agreement. If Facebook.com gets sand in its face Yahoo! can break-off negotiations. If all goes well then Yahoo! has got the inside track on a rising star before the rise.
I imagine that the pre-expansion Facebook.com members are feeling a bit like us veterans did when AOL unleashed their membership onto the Internet.
Let’s see how many join the new Facebook.com SEO group. ;)
I did!
Bubble? Not!
This boom is being caused by three key factors.
1. Broadband reaches critical mass 2. Digital Ad Budgets are growing...quickly 3. Everything is better and cheaper
I just read this and it blew my mind...the Internet is responsible for 25 percent of overall media consumption, while Web advertising only receives 6 percent of total marketing budgets. I guess I'll have a job for a while...:)
The way I see it playing out:
2005 was the year PPC got mainstream acceptance and legitimacy 2006 was the year of social nets got mainstream acceptance and legitimacy 2007 will be the year online video gets mainstream acceptance and legitimacy 2008 will be the year of mobile gets mainstream acceptance and legitimacy
(mainstream acceptance and legitimacy = F500 Ad dollars)
Mobile is our 3.0 IMHO. It's another game changer for all of us and will ultimatley be the biggest playing field of them all.
Seems to me like we're chewing a whole pack of Hubba Bubba!
Jonathan,
I think youre right on on this: "2008 will be the year of mobile gets mainstream acceptance and legitimacy".
I know mobile has been talked about of while, but it is slowly happening.
It was the blackberry that first paved the way for mobile access. Other mobile uses like Dodgeball to MMS are in their earlier stages, but at least antedotally I see people more and more starting to use it - though in small numbers. And Nokia's new N-series is pushing things futher (sure it'll be a 6-12 months or so before they hit the US).
Interesting to see what this will look like. And also, to see if it will be Europe/Asia taking the lead as they are traditionally stronger in mobile tech. than the US.
Lots of big money and big talk in the industry with little to back it up. This ties in closely with the RBC analyst valuing the potential value of MySpace at $15 billion.