$ocial media bleedia?
My social media friends who think I hate the stuff will only receive confirmation of that misconception from today’s post. But really, this is something they have to think about.
Yesterday’s San Francisco Chronicle reported that there’s been a sharp falloff in venture capital funding for social media companies, which received “only 2 percent of the venture capital headed to Internet enterprises last quarter.”
That was down sharply from the 6 percent (at least) of all venture funding social media companies received in each of the quarters in 2010-2012, with the peak occurring in the third quarter of 2011, when Twitter launched.
Here’s the interpretation from a tech investment guy quoted in the article: “We are certainly in another bubble.” In fact, the article’s reporter, who writes for Bloomberg, compares this slowdown with “the deflating of the Internet bubble of the late 1990s” which led to the dot-com collapse.
No one is saying this defunding of social “bleedia” is going to result in a stock market crash. But it does seem to me that it represents a turning point in the evolution of social media: the moment when the investment community realized that social media–big and important as it is–isn’t as big, and won’t be as big, as some people had hoped.
Where the smart money now is going is to business intelligence, analytics and performance management, advertising, sales and marketing, and anything to do with the cloud.
Having said all this, it’s important to point out that the drop-off in social media funding applies only to new startup companies. It may simply be that the social media field is now mature, stocked with existing companies, leaving no room for new ones. But if use of social media was continuing to skyrocket as it did in 2008-2012, you’d think there would be continuing opportunities for savvy young entrepreneurs to enter the field. But apparently, that’s not what investors think.
It’s true that use of Twitter and of Facebook continues to rise. But both of these companies face revenue and earnings issues, and it’s not clear that they’ll be able to increase income without resorting to some kind of premium service that will turn off millions of current users (as YouTube is experiencing right now), or without getting deeper into advertising, which also is not without problems: Facebook, at the very least, is seriously annoying people with these new popup ads that appear in our feeds, and it’s not clear to me how much more users will take before they revolt.
You would think that these existing problems and challenges confronting Facebook, Twitter and YouTube would encourage young entrepreneurs to come up with alternatives. But I think the venture capitalists have realized that these revenue and earnings problems are endemic to the Internet, and not specific weaknesses of individual companies. Any social media startup will face the same problems.
Which gets us back to where I started: the problems inherent in the social media model seem unsolvable, at least by any means that are now apparent, even to Silicon Valley’s top angel investors. Social media companies can’t figure out reliable ways to earn profits because end users can’t figure out reliable ways to use social media to make money. The great investment bleedia is a clear sign that social media has hit its first significant speed bump, forcing it to slow down.