Social Networking's 'Naked' Truth
Are we staring another dot com boom/bust right in the face? When it comes to social networking, that very well might be the case since it appears this emperor has no clothes.
This is coming up in a big way this week as the media remains fixated on who might snap up Twitter.
That seemed to be a key focus at this week's big business titan confab in Sun Valley, Idaho if you read the coverage.
Twitter's CEO says he isn't interested in selling, News Corp.'s Rupert Murdoch says he isn't interested in buying. Nor is Google; Yahoo; Time Warner; Apple.
Maybe it's because Twitter has no revenue or profit stream, though that hasn't stopped so many experts from slapping wild valuations on the property, some topping $700 million.
MySpace really started all this: selling to News Corp. for $580 million four years ago next week after being in business for a nanosecond. Let the social networking land grab begin! In order to make some of its money back, and monetize the millions of eyeballs, News Corp. flooded the site with ads, and that gave Facebook a massive opportunity to lure away some of MySpace's base.
Today, MySpace is in disarray, and Facebook enjoys a reported $10 billion valuation, thanks to Microsoft's paltry investment, as well as the $200 million from Digital Sky in May for less than 2 percent of Facebook.
But is the Facebook valuation also a little nuts? Just this week, board member Marc Andreesen claimed the company could have a half billion in revenue this year. No word on profits though, or even a time frame for them. And he should know a little something about dot coms, and Microsoft and Time Warner, and the way this game has been played thanks to his Netscape days.
Yahoo's Carol Bartz doesn't have any interest in Facebook or Twitter either. No money in it, and Yahoo's building its own communities without having to spend huge premiums on unproven, unprofitable assets. Microsoft's Steve Ballmer recently wondered what kind of realistic return his company could actually get from Facebook, hardly convinced that it would amount to anything material.
Look, I don't argue the power of social networking sites. Facebook is addictive, even magical to millions. Same goes with MySpace, and Twitter, and LinkedIn, and Digg, Badoo, Classmates, Bebo, Flixster, Friendster, Orkut, and hundreds of others. They are powerful, fun, convenient. They offer value. And they build connection. Look no further than the Michael Jackson news tsunami to see how social networking affects our lives and drives information.
But with hundreds, even thousands of these sites out there already, with many attracting millions in venture capital, I simply ask, Where's the return on the investment? What's the business model to MAKE money and not merely to attract investment?
These sites generate enormous news coverage but next to nothing in profits. Somehow, we're descending into a kind of Back to the Future scenario where eyeballs and headlines become flimsy substitutes for business models and profit streams.
I don't know, but it seems like hype is eclipsing hope when it comes to social networking. We've seen this all before. And paid a dear price for the busting bubble. The valuations being bandied about for these sites defy reason. Social networking might be cool, but where's the beef?
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