Conventional wisdom among many stock market analysts used to be that highly successful social media companies such as Facebook, Groupon and others would fare well in the U.S. stock market. Yet, surprisingly, just the opposite has occurred in many instances invovling the largest and most successful social media sites.
Some social media outfits have seen their valuations plummet since going public. This has caused a monumental loss, on paper at least, of hundreds of billions of dollars for owners and investors — depending on the company. Investors may include younger employees who vest their earnings in company stock or even get paid with it.
NBC News: Investors ask if another tech stock bubble is bursting?
“Facebook’s losses since its IPO aren’t quite as dramatic as those of other social media companies that went public over the past year, including online gaming site Zynga, which has seen its stock price decline 71 percent since its IPO last December, and Groupon, which has seen its share value plunge 84 percent since the company went public last November,” reports NBC News.
Nevertheless, the skyrocketing popularity and dominance of social media continues to radically alter the traditional media landscape. This has taken place despite dramatic market plunges in the wake of initial public offerings (IPOs) and market expectations.
How does one explain this paradox?
Also, should this be of any professional concern to government communicators, who have adopted the use of social media as standard operating practice?
Facebook’s other face
Many investors banked on the Facebook IPO to generate tons of quick cash. They thought it was easy money. However, to their utter dismay, Wall Street looked the other way. This is not to say that Facebook won’t fare well over the long term, but who knows?
Some of its doubters think Facebook doesn’t have enough room to grow. But consider that even as it closes in on a staggering 1 billion users, Facebook still has hundreds of millions of potential users to sign up. Moreover, global population growth is exploding.
Nonetheless, most of the financial news has been negative for the social media behemoth’s stock valuation, not to mention its brand image.
Perhaps social media giants like Facebook need to devote more time on revamping their long-term business plans with new innovations for growth and revenue via the expansion of mobile technology, and less time basking in the media limelight.
US News: Social media bubble starts to burst
“The whole ordeal has also highlighted a unique aspect of social media that investors momentarily lost sight of,” according to US News. “Though it continues to grow as a powerful technological force, social media remains difficult to monetize consistently. By nature it is ephemeral, vulnerable to other types of disruptive technology, and resistant to the kinds of corporate controls that Apple and Google are capable of instituting.”
Wall Street worries
Apparently, most Wall Street insiders are not optimistic about the prospects for Facebook and other large and wildly popular social media sites. But perhaps their conventional wisdom is wrong — if so, it wouldn’t be the first time.
The big question for Facebook and its market competitors is whether another so-called Silicon Valley dot-com bubble will burst?
Some think the answer is yes, while others see glimmers of hope.
USA Today: Social media stocks get bounce
“Analysts and investors who think social media stocks are attractive are being creative in their analysis,” according to USA Today. “None of the companies have yet to prove that they can be profitable long term, especially when it comes to mobile-related revenue. Mobile users of social media are working with smaller screens, thus have less attention span and less tolerance of ads taking away from space for content.”
Some wonder whether it’s even possible for the expanding social media bubble to burst, with leading companies being wiped out? While this may appear highly unlikely now, one never knows. Let’s not forget the bursting of the tech-bubble and the housing bubble, which previously sucker punched our economy in the gut.
Assuming the worst, that the social media bubble does burst, how will this affect the U.S. Government’s ability to effectively communicate and engage not only with its own citizens but also with people worldwide?
Only time will tell.
Also see:
Facebook & Free Speech: govies fired for “Like”
Defining Work-Life Balance in a Digital/Mobile World
DBG
* All views and opinions expressed herein are those of the author only.
This is interesting to think through…I guess there are two ways to look at it – from a technology standpoint and financial, I don’t think social media is going anywhere any time soon in terms of technology, new platforms may emerge, others may disappear, but social media will continue to evolve.
In terms of the financial side, Facebook was subject to a lot of hype with their IPO. The USA Today article you mentioned was really fascinating to read through, citing how the success of LinkedIn caused people to 1) Consider LinkedIn undersold their stock and 2) That caused people to over estimate the value of Facebook. The article also mentions how hard it is to consistently monetize social media, so that for sure is playing into Facebook’s stock.
All in all, Facebook is creeping towards billions of users, and have the best people to fix their stock prices. I don’t think it bursts, I think the problem is that Facebook was overvalued from the get go, so the markets are just leveling out. Super interesting to think through, so thanks for sharing!
Thanks, Pat, your keen insights and sharp analysis are always awesome — and appreciated. In addition to thinking “outside the box” you excel at thinking “outside the bubble”!
Here’s the trouble with monetizing social media platforms:
1) Human connections are really difficult to put billboards on.
2) We all know how to ignore advertising.
3) People are unpredictable. A message may resonate and get passed today, ignored tomorrow, and be completely off-putting next week.
Paying for advertising on Social Media platforms is like having advertising on your phone. Imagine every time you picked up the phone someone said “This phone call is brought to you by Johnson & Johnson.” It would be strange, right? And you’d stop listening for the first 20 seconds of every phone call.
Either companies pay for the service through advertising or it becomes a subscription-based service much like your phone bill. The market is used to getting it all for free and most marketers are still trying to use Social Media as an extension of their traditional advertising plans.
The platforms won’t disappear. Expectations on how to make money off of them will change – I suspect dramatically.
Servers and the technicians to operate them are not inexpensive. Companies which are unable to successfully monetize their services eventually stop providing them. It seems increasingly unlikely social media will be able to montize free services through advertising alone. Subscription based services appear to be the only alternative. Linkedin already offers premium subscription services. Facebook may also have sufficient market penetration and user loyalty to be able to make this tranisition. Twitter is likely to face more difficulty but may be able to identify niche markets sufficient to turn a profit. The rest seem destined to join Myspace on the trash heap of over hyped net services. The consolidation may allow government social media coordinators to focus their efforts on a smaller number of surviving platforms.
An alternative for making money off of Twitter would be selling the back-end data analysis for trending and market analysis. The same for Facebook, but then you have the bitter taste that inevitably would take up residence in people’s mouths over that level of data mining. I have mixed feelings about it – everything has a price: living your life on-line invites the whole wide world in. Not all of those people are going to have your best interests at heart.
But I do agree – it isn’t cheap to run an enterprise like Twitter (or Facebook, or whatever). There’s got to be money in it somehow… otherwise we’ll eventually go back to the days of community-driven message boards hosted and monitored by people who are passionate about a particular niche…
Thanks very much for the thought-provoking and insightful comments A.L. and Peter. Regarding monetizing via ads on social media — as you know — they’re already on YouTube and many digital news sites (like nytimes.com, washpost.com, etc.).
Yes, these ads are often annoying and get in the way of the content you clicked on to read. However, I’ve noticed more nuanced ad features, such as “Skip this ad” or shorter ads with a 10-, 20- or 30-second countdowns until the requested content appears. Any thoughts how that may be applicable to other social media, as it seems to be viable for YouTube?
FYI — Interesting article yesterday in The Atlantic on social media monetizing, valuations and venture capital, etc. Why the social media revolution is about to get a little less awesome
“The first few years of the social media revolution have been a golden age of tech utilitarianism, where maximizing users’ delight was considered, quite literally, the only currency that mattered. In Part II of the revolution, the desired currency is poised to change from attention to profit. That’s a shame. It doesn’t mean that the programs you love are anywhere close to coming to an end. It just means that things are about to get a little less awesome,” according to The Atlantic.