Does Facebook’s stock reflect social media’s decline?
Wednesday, May 23, 2012/
After its successful float on Friday, social media giant Facebook’s stock is now 18% down on the IPO price and there are claims some investors were aware of revised analyst expectations shortly before shares went on sale.
Facebook’s share price isn’t being helped by large advertisers, most notably General Motors, publicly expressing their dissatisfaction.
In SmartCompany‘s survey on business tech use, one statistic that stood out was that less than 30% of businesses were happy with their returns on social media.
Facebook can’t even win in the courts with a Californian magistrate throwing out the social media platform’s trademark case against a Norwegian pornography site.
It’s been clear for some time that the tech industry has been in an investment bubble and social media services have been at the centre of that hype.
The huge expectations of Facebook’s float value have been one of the drivers of Silicon Valley’s investment boom – a dangerous feedback loop in itself.
So now Facebook’s share price is in decline and angry investors are asking why and demanding answers from advisors and banks.
The real question, though, is does Facebook’s float mark the peak of the current tech boom in the same way AOL’s merger with Time Warner in January 2000 marked the peak of the original dotcom mania?
One of the great similarities with the original dotcom mania is the businesses’ failure to make money from their services – today’s Pinterest and Twitter have that much in common with the great dotcom boom debacles of Pets.com and Boo.
The biggest problem with the social media services is that most of them are advertising dependent. As we see from General Motors’ dissatisfaction and that of the businesses in the SmartCompany survey, most businesses aren’t happy with the performance of social media platforms.
Getting the advertising – or other revenue streams – right is key to the survival of these services. Google cracked this after the original dotcom boom and is now one of the most successful companies ever.
The companies that figure out the revenue models for social media or online news will be the next Google, and Facebook could well be the business that cracks the code for social media.
For the social media industry overall, it appears the sector is now at what Gartner calls the “Peak of Inflated Expectations” on the Gartner Hype Cycle.
After the peak comes the tumble into the “Trough of Disillusionment” and that appears to be where Facebook is heading.
As Gartner points out, that trough is also where good, stable businesses are built. While the sector or technology is scorned, those who survived the tumble out of fashion are able to consolidate and learn from the harsh lessons they’ve received.
Eventually the market rediscovers the technology or industry and it becomes accepted as a mature business or, as Gartner put it, they enter the “Plateau of Productivity”.
This is what Amazon – now an internet giant – went through during the dark days of 2002 and 2003 after the tech wreck.
Whether Facebook can emulate Amazon or Google is for history to judge, but social media’s falling out of favour is not a bad thing. The wreckage of the current tech mania will see much stronger and more viable social media businesses emerge that will deliver real value to industry and society.
In the wreck of the dotcom boom we saw HTML “coders” reduced from driving Porsches to driving buses – the same thing will probably happen to many of today’s social media experts. That, in itself, is not a bad thing.
Paul Wallbank is one of Australia’s leading experts on how industries and societies are changing in this connected, globalised era. When he isn’t explaining technology issues, he helps businesses and community organisations find opportunities in the new economy.