I think that we are in fact in a social media bubble, but as Kim Jong (@4everjong) pointed out the size and nature of the bubble greatly depends on your perspective when looking at it. There are three (maybe more – but for now I’ll stick to three) views when analysing whether there is a bubble:
- Company Valuation – are companies playing in the social media space valued reasonably?
- Consumer Uptake – to what extend are people consuming social media (and why)?
- Marketing Opportunities – what opportunities do brands have to take commercial advantage of social media
Company Valuation
First off, let’s look at company valuation in this space. Normally investors look at a company’s ability to make money now and in the future as the reason for putting a given price tag on a company. I say normally, because in the social media space this logic doesn’t seem to apply. A few examples:
The big F first. Facebook haven’t revealed revenue or earnings for the full year 2010 yet, but it seems likely (based on figures from the first nine months of 2010) that they will bring in revenue of roughly $1.5bn and make around $0.5bn from that. Right now employees and early investors are trying to offload some of their share at a $75bn valuation, according to techcrunch.com. So the valuation has a multiple of 50 on revenue and 150 on earnings.
The problem with Facebook’s valuation is that they won’t grow insanely in the number of registered users. Adoption growth has begun to decline, so it’s all about monetising their users now. And with their current ability to do so, it will take them 150 years to pay back their investors. That seems a pretty long horizon for most investors.
Twitter has around 20% of the users that Facebook do. And roughly the ratio on valuation. Twitter turn over somewhere in the neighbourhood of $50m and expect to bring in twice that in 2011, making the valuation a multiple 200 on revenue when Bessemer got a piece of the action earlier this year.
The problem with Twitter is the inertia surrounding it. Three groups of people use Twitter: VCs, marketers and journalists. And between them, they get overly excited and agree on how brilliant it is. It’s not to most people. And the ability to monetise is even worse than Facebook, though Twitter’s audience is more attractive (high income etc.).
The list goes on with examples like Radian6, who got a multiple of 25 on revenue when salesforce.com bought them about a month ago. Great for salesforce.com’s stock price, I’m sure but difficult to see how they are going to get that money back. However, given the claim that we are in a speculative bubble, they don’t need to make money on it, because the stock market rewards them for ‘getting into the social game’ on sheer speculation and empty assumptions that it’s a good thing to do.
Maybe I have all the signs of a grumpy old man – but I’m finding it hard to see why sane people are doing this unless they are speculating in ever rising valuations based on other things than the social media companies’ ability to make money.
One exception (there are arguably more, but this one is just so obvious) is Groupon. They combine what we all love about social media – it’s easily shared, it’s easily consumed etc. – with the other thing we all love (nope, not sex – at least that’s not the one I had in mind) – a good deal. Now Groupon reportedly have a revenue run rate of $800m. Rumours state that they are looking for an IPO at a $25bn valuation, or a multiple of 31. It’s high, but it’s nowhere near as insane as Twitter or Facebook. Because it makes money from the offset and it ties social media to commerce. To actual goods changing hands. Whether it’s services or physical goods, that’s what businesses do. They sell stuff in exchange for money. Period. Anything else is pure speculation and a bubble building.
Consumer usage (not to be confused with businesses’ commercial use of social media)
The simple test here is: are people using social media? They certainly are. And as such there is no bubble in social media as a whole.
However, I think that there are several bubble-like tendencies around specifics within social media. I spoke about Twitter earlier from a valuation perspective. But also from a consumer perspective, relatively few people are active on Twitter in the sense of tweeting. Those that do tweet tend to do it for a while after they sign up and then seize to do it. Because it has its obvious limitations. Active tweeters divide into two categories – those that place value in their tweet and those that use the tweet to promote value outside the tweet, typically linking to content on another site. Why are there few good tweeters that place value in the actual tweet? Well, 140 characters are not much to express something meaningful, so the discipline of articulating something relevant and eloquent is for the few. I’ve tried and I stink at it. But I love it when people tweet well. And like most others, I really hate when people tweet poorly – you know, nonsense about the weather, their kids and all that rubbish. But – what I like most are tweets that link to great stuff. I cannot argue the case for convenience enough (because I’m lazy as hell), but now that I’ve boiled down the people I follow to a small set of people who post quality content, my daily Twitter digest gives me 5-10 links to content that I enjoy. However, it’s hardly ever my friends that post quality stuff.
My point is that Twitter is both relatively niche and relatively sensitive to the fact that the novelty wears off pretty quickly. And similar arguments can be made to just about any other social media phenomenon, whether it's up-and-coming like foursquare or tried-and-failed like MySpace/Second Life.
In my view the only thing that does not have this problem is Facebook. And without going too deep into my analysis of it, I think it has to do with the fact that it reached critical mass quickly. Today most users have way too much social equity invested in Facebook, making it impossible to quit. When party-invites, social gatherings etc. are all scheduled and coordinated via Facebook for the sake of convenience (and not sent via email or text), quitting doesn’t make sense. I realise that there is a much larger discussion around how social media is consumed, but this is not the time or place for me to do that. Buy me a beer and I’ll happily talk about it. Buy me a few beers and I’ll ramble about it for hours. I’m sure you get the picture.
@4everjong made a point that “Social and Mass Media, especially TV, will converge into a new, mashed up media platform during the next couple of years ... look to the progressing integration occurring between social media like YouTube, broadcast networks and the hardware manufacturers who are also content distributors like e.g. Sony and Apple.
Hmmm... OK, I buy that. That’s technological progress enabling manufacturers of content to better distribute content and consumer to better consume content. Great. No bubble there, rather evolution of an existing industry. But I do want to pull the bubble card when I come across claims that (and more importantly when a large group of people start behaving as if) TV as we know it will be obsolete in a year. Maybe in twenty years, but in one? It was probably not what my favourite advertising-dictator-body-double (yes, that’s you Mr. Jong) was trying to say. We are living in interesting times and media production, distribution and consumption is being disrupted. And exploring this, pushing the boundaries of it makes perfect sense and has nothing to do with a bubble.
Marketing Opportunity
Where I’m constantly torn between tears and laughter is the argument of marketing budgets in social media. On one hand it’s quite funny to see the sheer desperation in the eyes of CMOs. And on the other hand it’s utterly disturbing to see the amount of money being thrown at social ideas conceived and executed by people having no idea what they’re doing or why they’re doing it.
I’ve heard people argue, “no no, there are some really good social media agencies out there, who are great at what they do”. All right, I’ll give them the benefit of the doubt and say that on average these agencies are as good as any other advertising agency. That’s not impressive. Ask an advertising agency if they think you should splash a big load of cash on a campaign and I’m pretty sure I know the answer. Ask a social media agency if getting into social is important for your brand – and guess what the answer might be.
A year or two ago the most popular phrase around the marketing world was ‘join the conversation’. Fortunately for the tick I was starting to develop, they’ve stopped saying it. But the popular opinion remains that a brand should have a social media presence, a social media strategy and a social media everything. Most brands shouldn’t. 90% of the products we buy, the brands we see and the things we do simply don’t justify a social media involvement. Toilet paper: I don’t want to spend my time debating how to wipe my arse and I trust that you’ll appreciate that. Even if I do think that Lotus could make theirs a bit softer and leave out the chemicals giving it the scent, I really don’t think that anyone benefits from having those thoughts in the public domain.
If you are a brand that deals within a high-involvement industry, social media is likely to be a much better idea. And then there are tons of nuances as to how you could execute. Is it a sales channel, a service medium, a marketing platform or a human resources tool? It depends and could all of them or none of them. It could be a campaign concept creating a time-constrained awareness and involvement (e.g. The Best Job In The World campaign) or it could be a prolonged, continuous effort (e.g. Twelpforce). Either way, it’s probably more or less case-specific.
And then there are all the in-betweens. All those companies that shift between low involvement and high involvement during a consumption cycle. Insurance is a good example. No one cares about insurance 364 days a year. But that one day when something happens, anything an insurance company can do to be available, to be listening, to be guiding or to be empathic is absolutely the right thing to do. But it requires a really well-conceived strategy on when, where and how to engage in a conversation. Not a bloody company Facebook page.
What I hate is the notion that social media is a big commercial opportunity for everyone. It isn’t. But popular opinion is that every campaign pitch, every campaign brief should have a social component. Wild-arse socially-based ideas win pitches these days and that is a sign of a bubble built around uncertainty, insecurity, ignorance and stupidity in the marketing and advertising industry.
So – two bubbles out of three as I see it. Burst my bubble or inflate my ego further (in which case I can get a gig to be floating over Wembley for the Champions League final next month) by adding your comments. Look forward to it.
