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Michael Moynihan

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The Death and Life of Social Media

Posted: 08/22/2012 5:28 pm

The recent drop in Facebook shares to half their IPO price, coupled with falling prices of Zynga and Groupon stock, have prompted a deluge of articles proclaiming the bursting of the social media bubble. From the Wall Street Journal zeroing in on the the exit of Mark Andresson from Groupon to famed investor Mohammed El Erian finding a silver lining to Facebook's plunge in the ability of public markets to see through private valuations, a host of writers distinguished and otherwise have proclaimed the end of social media. Drawing a parallel with the Dotcom bust of 2001, most are happy to see prices fall to earth while a few have even celebrated the end of the time-wasting social media craze.

A reality check reveals, however, that social media or Web 2.0, much Web 1.0 was in 2001, is if anything, only expanding. Groupon, for example, reported revenue of $568 million last quarter. While earnings slowed, that still represents an annual run rate of $2.3 billion. Not bad for a company four years old. Similarly, while Facebook reported that up to 10 percent of its members are not real, that still leaves 800 million real users, a number that continues to grow. It has been noted in some of the recent social media bashing as an asterisk that unlike the Dotcom heroes, the social media companies that went public have substantial revenues. Make that really substantial revenues. Linkedin, for example, is heading toward $10 billion in revenues which puts it well up on the Fortune 500 list. The stock prices of some may be high -- some may even eventually crash to zero -- but the social media phenomenon is not only real. It is still growing rapidly.

Every economic sectoral boom leaves casualties in its wake: think railroads, steel companies, telephone companies and certainly financial services firms. An explosion of startups usually consolidate into a few long lasting companies. In 2002 when Yahoo was leaving behind search pioneers like Alta Vista and Excite, who would have expected Google would one day surpass Yahoo? The names have changed but the importance of search has not. Similarly, social media has seen ups and downs and will not doubt see shakeouts.

Myspace was a model for Facebook but now the latter dwarfs it. While the names may change, however, social is here to stay. Why? Social technologies embedded in buying, communicating, problem solving and other activities that take place on the web provide value because people like to do things with one another and the technology now makes it possible to aggregate, slice and dice the shared wisdom, spur of the moment comments, labor and buying power of large number of people in ways that benefit all of them.

So while the plethora of Daily Deal companies that copied Groupon may disappear, social buying will not. And people will want to keep tabs on what others are doing whether they get those feeds from Twitter, Facebook, Foursquare or some other firm whose name we do not yet know.

Since its inception, information technology has undergone one revolution after another -- from big to small, corporate to personal, individual to networked and now stationary to mobile. What has driven all the changes is the underlying technology operating according to laws now well-known, miniaturization (Moore's Law), the network effect (Metcalfe's Law) and the benefits of parallel processing whether by chips or people (Amdahl's Law. Those laws have not been repealed.

Other leaps forward in Internet and computing technologies no doubt lie ahead. But whatever the temporary ups and downs of prices of stock, one thing can be said with certainty. Social computing like the Internet on which it rides will remain a powerful driver of wealth creation for many years ahead.

 
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