Back in the day, the dotcom boom saw hundreds if not thousands of companies eager to leverage the web plough millions if not billions of dollars into ultimately fruitless ventures. The subsequent crash in 2000 reverberated for years. But did investors learn their lesson? If the example of Digital Sky Technologies (DST) is anything to go by, not on your nelly Mr Brownstone. A second generation dotcom boom is under way...and this could well threaten the very platforms and technologies that are currently driving the social web.
Last week, DST ploughed an additional $125m into Facebook, making its total investments into the network close to $1 billion since 2009 and giving Facebook a ‘notional’ value of a mammoth $50 billion. That’s close to Tesco’s stock market valuation. And The Sunday Times this week reported that DST, which also has significant investments in both Zynga and Groupon, is now preparing to buy a stake in Twitter that will value the service at around $5 billion. These are staggering figures, especially when you consider that Twitter made no more than $100 million in advertising revenues in 2010. So how can a valuation of 50x revenue, or even 25x in the case of Facebook, possibly be justified?
To my mind, the answer has a massive potential impact on social media towards the end of this year and into 2012. First, such unrealistically inflated valuations for social media platforms mean that potentially great start ups may never get off the ground as investors rush to sink (and lose) cash on the less-than-promising. And second, investors are justifying their hugely risky outlays by banking on the fact that Twitter can profit from selling access to users to people like me, marketers. And the same goes for the likes of Facebook, LinkedIn, Groupon and Zynga, all of which rely on gathering huge amounts of personal data. But if that’s the case, where does personal privacy come in?
It’s this second point that most concerns me. From a marketing perspective it’s fantastic that I may be able to buy access to highly targeted consumers. But from a personal perspective, why would I continue to use a social platform where I know I can be sold to? The answer: I wouldn’t. I’m sure I’m not alone and that is a huge threat to all social media. So when does the crazy ride of social media start to come crashing down? When does the bubble of overpaying investors and over-enthusiastic users burst? Maybe not in 2011, which will more likely be about platform consolidation. But it’s not unrealistic to expect to see huge changes in 2012.
What do you think? Do the huge investments and valuations surrounding social media concern you?
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