A lot has been written in the weeks since Facebook's IPO stumble. The social media bubble has burst and all social networks are under close scrutiny. If Facebook cannot succeed, then allegedly, none of the other networks can succeed either. What does this mean for all the adjacent platforms that are monitoring and analyzing our social behavior? The bubble burst, social media is dead, long live...what?
The focus on the financial models of social networks is long overdue. Like the Internet bubble of the late 90's, many social networks have emerged with little differentiation and even weaker business models. A reliance on advertising (e.g., Facebook, Foursquare) and group based coupon revenue (e.g., Groupon, Living Social)Advertising is simply not enough. Personally, I find the ads that appear on my Facebook page less than compelling and honestly, a nuisance. Location based services are intriguing and finding coupons for discretionary purchases are helpful. However, most local businesses that I've talked to are not a fan of the Groupon model.
Facebook is popular, prevalent and provocative. 900 million monthly users (as of March 2012), 80% of which are outside the U.S. and Canada, reflecting over 125 billion (yes, that's a B!) friend connections and 3.2 billion Likes make Facebook both popular and prevalent. It's provocative in the way it introduces new features or changes personal settings. It's always asking for forgiveness, not permission. This is reflected in its public launch. While Facebook is certainly THE social network of all social networks given the previously noted statistics. It's business model is still suspicious. Facebook and its investors were hoping to ask for our forgiveness in the pricing of the stock and number of shares issued, regardless of the fact that the corporate structure still leaves Mark Zuckerberg in full control of company strategy and decisions about future stock issues that could devalue the investment even further.
However, this does not mean that social media is dead. To the contrary, it's a wake up call to pay attention to the basics. A business plan must show how value will be created for customers. Value will translate into revenue. Revenue should be invested in further value creation in the form of product development,employees, R&D, partners and go-to-market channels. Social media has connected both consumers and business in a manner not previously seen. It's like squeezing toothpaste out of the tube. Users of social media have an expectation for instantaneous access to information from friends, family and companies. We desire candid opinions and informal interaction. It's like squeezing toothpaste out of the tube. Once it's out, it's impossible to put it back in.
Like any emerging market, social media is now undergoing growing pains. There has been an amazing amount of VC funding available to almost any company with a social proposition. The challenge is in converting ideas into sustainable businesses. Is it realistic that they can all survive? Of course not. There will be mergers, acquisitions and failures. Like Darwin's theory, it is survival of the fittest. And, that means those with a viable business plan.
What's your perspective?
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