There is a great deal of conversation around the social media bubble at the moment. If you have not heard already, the social media bubble is a topical debate about whether social media websites like Facebook, Groupon, Linkedin and Twitter a actually worth the values that they have been estimated at. The values are outlined in this infographic.
The concern is that if they are overvalued then we may be repeating history when we experienced the technology bubble with many start-ups going bust after securing large start-up investment deals. Is this a valid concern or are we just getting into another stream of hype?
I think there is definitely going to be a “show-down” in the social media world soon. This will be the point at which social media platforms that cannot realise strong return on investment will lose their hold on the market and more importantly the investors.
Facebook for example makes most of its money from advertising and although this is a tried and tested business model it may not survive in the long run. Facebook advertising is much like billboard advertising, eventually Facebook users won’t see the adverts and this will result in lower click-through and thus lower revenue.
I believe that the best revenue models will come from innovation in the social media space and not the replica’s of traditional media and PPC/CPM technology.
I am very interested in the move the Facebook is making at the moment with the integration of Facebook places (a foursquare replica) and Facebook Deals (a Groupon replica). Creating a social platform that combines geolocation data and sales specials could be a great innovation towards a viable business model. Facebook also has the opportunity to include psychographic and demographic data into this model which is not available to Foursquare and Groupon.
Back to the bubble. The effect of the social media bubble will only be felt by those social media companies that fail to find new revenue streams that leverage their large databases of consumer data. At the end of the day this is why they are getting the investment in the first place – consumer data that is so rich it is not available in any other industry, medium or channel.