The social media world continues to grow and as Peter Lang, Social Media Strategist, very convincingly puts this growing trend… its bullish. While I agree that the social media industry is far from done, I recently wrote a post describing a phenomenon that compares quite well to the social media environment: Life Cycles in Financial Markets.
One of the first social media networks we saw was Myspace. It was a hit and everyone was talking about the potential IPO opportunities it could have. You could see the dollar signs in eyes of the founders. But like every product, there is a life cycle. Competing products come into the market and attack the “big dog” and eat away at the market share. The biggest market grabber (and essentially chopping the legs out from under Myspace in the process) was Facebook.
As Facebook grew in popularity, it detracted from the searches for Myspace because everyone was moving to a new social network.
But Facebook is not the only social networking site. Professional networking sites like LinkedIn are increasing, Twitter the micro-blog has exploded, gaming sites like Zynga, community involvement like Yelp, and geo-tagging applications like Foursquare are all growing in popularity. So my question is… how do you determine value in a market like social media that changes “every nine months?”
Myspace received venture capital as have Facebook and Zynga. But with declinig usage Myspace has faced several problems: in early 2009 one of the cofounders steps down, by mid-2009 they were planning on cutting 300 international positions, and by early 2010 the CEO was stepping down. That is never a good sign for any company especially one operating in dynamic environment. Which brings us to the bid daddy right now: Facebook. It is receiving venture capital but where is the the future? Life cycles are a virtual certainty in this industry. Yelp received an offer from Google for $500 million but instead it received investments totaling $50 million from investment firms. Is this a short term investment or are they hoping for long run returns?
That’s the problem with these type of companies going public and issuing stock. They must create value for the stockholders once they have them. How can this be done when companies rise and fall so fast? It seems like it would be almost reckless to allow companies like this to go public and eventually fall, wiping out retirement accounts with them. This is one of the new issues facing old financial markets. How will they collide?
