Six Pixels of Separation - The Blog
November 28, 2007 9:43 PM

Online Social Networks Double Bubble

What do you think about the "B" word?

Bubble.

I lived through the dot com bubble. I was there before it happened. I even stuck around for a little bit after. Being on the search engine side, I had a very different perspective - mostly because I was able to see the traffic spikes and understand what people were looking for when times got tough. It was one big, massive tag cloud and zeitgeist that I found fascinating on many levels.

I don't think we're going to go through another bubble now, but it seems like others do.

I read with appetite the Media Biz Blog posting by Paul R. La Monica on CNN Money yesterday entitled, Web Bubble 2.0 For Social Networks?

La Monica has a frank conversation with Jim Nail (Chief Strategy and Marketing officer at Cymfony) about advertising, social media, online social networks, valuations and the Internet's ability to deliver as a Marketing channel.

“'Marketers have finally given up the illusion that TV is the magic solution to everything,' Nail said. 'The problem is marketers want to look for the next magic solution and social media is not it.'

Nail argues that while consumers will probably continue to flock to social media sites, he’s not sure that any of them will really be able to generate large amounts of revenue from advertising. For one, he thinks that there are too many social networking sites out there chasing a finite stream of ad dollars.

'There are too many companies. So from that standpoint, there is a venture capital bubble in this area. There will have to be more consolidation,' he said.

Nail added that trying to handicap who the social networking leader will be several years from now is extremely difficult given how much change has taken place in the business in just the past two years. What’s more, fickle younger Web users have shown a tendency to flee one social network for the next once something cooler comes along."

My argument against another dot com bubble is threefold:

1. There is now critical mass online (anyone who wants to be online, is online). Even people with limited financial resources can go to a local shelter, church, hospital or library and get online. During the first bubble there was tons of hype but not enough people online.

2. Broadband penetration - it's impressively high in Canada (almost the best, per capita, in the world) and in other parts of the world. I know there are still huge issues with connectivity, but it is getting better and is miles ahead of where we were during the first bubble.

3. Stuff works. If you're playing with iGoogle, flickr, Facebook, or buying something on Amazon.com, it's all fairly intuitive, easy and fun to use. Trust me, back in the day, it was a miracle if the idea could even be executed online, let alone the massive amounts of crashes, bugs and errors you would get on any given day.

I don't think there will be another dot com bubble, but online social networks could have their own little bubble on the verge of bursting. Back to Web Bubble 2.0 For Social Networks?:

“'Now it’s the Cokes, P&Gs and GMs of the world. Real brands are fueling online ad spending,' he said. 'In the late 1990s, there was this notion that Internet ad campaigns were more trouble than they were worth. That’s no longer the case.'

But that doesn’t mean that all online ad-supported companies will benefit. Nail sees search advertising, not social media, remaining the online ad of choice for many companies since it is easier to quantify the impact of a search ad on sales."

The next bubble could be caused because of a lack of metrics, analytics and measurement? This is a problem we can solve. Let's get the right people in a room... or set-up a Facebook Group.

By Mitch Joel


Comments Comments Feed
  • Posted by Chamika
    Mitch Joel

    I think the next bubble will be caused by a lack of understanding of the medium - social networks are a place where sociology/psychology/anthropology meet technology. They require more sophisticated approaches to marketing and PR, but most companies aren't really taking the time to properly approach people on social networks.

    Although most marketers and PR pros get that content is king, the flip side is that attention is queen. It takes more time to capture people's attention than it did before. If marketers and PR pros start understanding that and applying it to different campaigns, we might not even perceive social networks as a bubble but as a way of life.

    Reply
  • Posted by Rex Hammock
    Mitch Joel

    "Bubbles" & "Busts" are something that take place in financial markets. There was never a "bust" in the growth of the Internet. There was a bust in the financial markets that allowed uninformed (and many theoretically smart people) to pour lots of cash into crazy ideas they believed would make them rich -- and because so many of those companies had made it to public markets, well, crash.

    There's a bubble of ideas today. And probably a bubble of Angel and VC money going into startup businesses that won't make it. Lots of failures in web 2.0 businesses may occur, but the dynamics don't exist for a crash in the financial market of Web 2.0.

    Possible exception to that theory: Google stock crashes and burns for any reason. That will dry up the Angle/VC funding for a long while.

    Reply
  • Posted by Luc St-Pierre
    Luc St-Pierre

    Mitch, I have to go with you on this. While there might be a bubble forming, I doubt it. Most investment in .com business isn't hand-on cash anymore. Those transactions take into account financial objectives and are paid for the results. If you look at Skype, eBay didn't pay the full amount that was offered in 2005, and it can still be of use to them even if they didn’t achieve their original goal. Some stock maybe be overpriced(yes I'm looking at you Google) but most actually match expectation.

    As you said, we have yet to explore the full potential of new media. I believe Microsoft got a bargain when they bought parts of Facebook, again, if they are able to use the avantages it can provide them (and in this case it’s pretty easy to figure how to gain from this investment). We juste have to sit and realize that our normal revenu models aren’t adapted anymore to the Web.

    I get information faster than most manager in my office, simply by using social networks. Can you make money out of this? Sure! I do. The question is will you do it? Most web 2.0 models are still trying to figure out what they want. So forget about getting them to building a real business model that will generate profits on short terms. But look at the Mozilla foundation. They fight on Microsoft turf, are profitable, they even gave out funding to outside projects. This all started with an open source model and a free product… Who said free can’t work?

    We still have to be carefull with our investment, but it's the same as investing anywhere else. The problem is that people fellow the hype, without thinking what they are doing. They juste want to get the next Google or Microsoft and get rich in an year. That cause bubble. But since people are scared of a new .com crash, most refrain from investing there , lowering the chance that it will all go out in smoke. At least for now.

    Reply
  • Posted by Shel Holtz
    Mitch Joel

    I'm glad you covered this, Mitch; all the talk of a bubble has been bugging me for a while. The fact that a bunch of companies with lousy business models don't make it doesn't a bubble make. (If so, the restaurant industry would be in a permanent bubble state.) Some companies will make it, some won't, simple as that. The volume of companies involved is increasing as the market and opportunities increase. The economic concept of a bubble, though, is being bandied about way too loosely. Reminds me the notion of a "paradigm," a solid concept that was overused to the point that nobody takes it seriously any more.

    Reply
  • @Chamika- that is the kind of stuff that Seth Godin is talking about. How Marketing is moving from a "how many" to "who" model. I think you're right, it requires a lot more time and work to build real relationships - it's a challenge for us in Marketing and Communications because we, typically, charge for our time and when stuff takes longer, it costs more.

    @Rex - great points and it adds that extra layer to this post - so thank you. Is it always the money people who make the bubble (and the burst)? I guess expectations are not always deliverable.

    @Luc - in most of the articles I read with the people running the online social networks, they agree that the "real" business model is not yet established. I always think about how long it took Google to discover AdWords and how long after that it took to get Marketing acceptance (some would argue it's still not, 100%, there yet - meaning it's not on every Marketers' media plan - even though it should be).

    Reply
  • Rex is exactly on target. The internet bubble was a financial phenomenon, fueled by relatively flush liquidity from new investment vehicles. The 90s were full of market changes like the widespread adoption of 401Ks and lots of new investors getting into an environment which previously was the domain of professional investors.

    The money from the internet bubble went somewhere else - to the real estate bubble, which is now deflating rapidly.

    Where will investors go next? I don't know, but if I find out, I'll leave you a private comment :-)

    Reply
  • @Shel Holtz - in this case there's the hype and hyperbole that drives it too. Venture companies see a quick win with Social Networks being the next "TV advertising." It's a speculation game and one that, usually, does not come to fruition. I do believe that these platforms work, have critical mass and do drive business. I don't believe that it's anything like what we're seeing in traditional advertising models.

    @Christopher S. Penn - You know the game better than I do. If one of these hits, they all go a-chasing. Lots of winners and losers when the money sniffers pop by ;)

    Reply
  • Posted by CT Moore
    Mitch Joel

    The thing about social networks (especially Facebook) is that they offer the potential to target users more accurately than any other medium ever. So I think as far as portals that simply offer users a way to network, there is probably a bubble swelling. But for portals that encourage users supply accurate demographics about themselves by offering them meaningful functionalities and interactions, I believe that they are very much outside that bubble. If that wasn't the case, Google wouldn't have initiated the Open Social project.

    Reply
  • @ CT Moore - thanks for the comment. I think the bigger issue with companies (including Facebook) is that they now have too much data and don't have the CPU power to slice and dice it and optimize it for Marketers. I look at basic emails list and the speed to which you can optimize the database, then I think about what Facebook has.

    If this was the case, why aren't they doing it already?

    My guess is because it's way more complex and expensive (in terms of time and man hours) than we think.

    Reply
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