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Is social media losing clout?



There’s a running joke on the great HBO series, Silicon Valley, to the effect that the only tech company that’s worth investing in is one that’s losing money.

If that’s true, then social media companies must be doing really well. However, in the case of Twitter, LinkedIn and Yelp, that doesn’t appear to be the case. The stock value of all three has gone down significantly lately, causing the San Francisco Chronicle to headline an article, “Is social media losing favor? Stocks dive on weak results.”

The issue, says the report, is “whether social media companies can keep their growth rates vigorous enough to justify their valuations.” Underlying that problem is the continuing challenge for these companies of how to maximize revenue, when their basic services are free for everyone to use. Yelp, for example, reported that ad sales have slowed down, making it harder to make money; Yelp’s CEO said the company is responding by “seek[ing] ways to increase engagement and drive awareness” in order to boost “local advertising.”

Well, “seek and ye shall find” may be basic Biblical advice, but it doesn’t always work in the real economy. I think what we’re seeing in social media is the same sort of consolidation that every other industry has experienced, with smaller firms getting driven out or gobbled up, as the giants expand their power. Facebook’s stock, for example, has been on a tear for the last three years, more than quadrupling, thanks to continued growth, including from Instagram, which it bought in 2012.

Twitter is an interesting example of a social media company, perhaps the prima facie one, whose actual financial performance consistently lags behind the weltanschauung it has created for itself in the popular culture. “Early hopes of rapid user growth were rapidly dashed,” reports the online news site, Fusion.

As a result, the company decided to concentrate on other metrics, like ‘audience’, which would count not only people using the service directly but also non-users and logged-out users who encounter tweets in any number of different contexts.”

This sleight-of-hand reminds me of the numbers game some bloggers were playing a few years ago, with sites competing with each other based on metrics like hits, unique visits, page views and so on. I was always asking the question, What difference does it make how many hits you have, if you’re not making any money? And I was always told not to be silly, because the big-number sites would eventually make money, and plenty of it, so I should keep my mouth shut.

Well, here we are, with some of the biggest big-number social media sites in America still struggling to make money, with no apparent solutions in sight. This is why the Fusion article suggests that Facebook buy Twitter, in order for Twitter “to remain relevant over the long term.” The theory is that Facebook, which has figured out how to make the Facebook experience “personal,” could transfuse that personality into Twitter, which—however much you may like and admire it—is about as personal as a classified ad.

Still, even if it were, would that make Twitter profitable? It couldn’t hurt. But figuring out how to create a revenue stream remains the single greatest obstacle to social media sites. If they can’t figure it out, they’re going to have to change direction and become something else, if they want to survive. There’s evidence this is already happening. The Wall Street Journal recently reported that Instagram is making money from an industry not usually associated with the personal warmth and fuzziness of social media: “the commercial real-estate brokerage business,” with real estate giants like Cushman & Wakefield “using photography-intensive Instagram for branding purposes.”

I suspect my young friends in Oakland, who love Instagram and are part of the cadre that made it popular, will continue to put up pictures of their tattoos and dogs on Instagram, but you have to wonder if their dedication will survive Instagram’s transition to what they may interpret as a rapacious corner of entrepreneurial capitalism and hype. How Instagram, and by extension social media in general, straddles that stool is going to be interesting to watch.

  1. Bill Haydon says:

    Could this generation’s hula hoop fad be fading? Could the most recent tech bubble be bursting?

    What was that saying that ran like a leitmotif through Battlestar Galactica? Oh yeah, “all this has happened before and will happen again.”

  2. Bob Henry says:

    On the subject of LinkedIn . . .

    Excerpt from The Wall Street Journal “Marketplace” Section
    (December 29, 2009, Page Unknown):

    “LinkedIn Wants Users to Connect More;
    Amid Threat From Rivals, Business-Networking Web Site Takes a Page from Facebook’s Playbook”


    By Scott Morrison
    Staff Reporter

    If LinkedIn Corp. wants to avoid being swamped by social-networking giant Facebook Inc., it will have to convince users . . . to log in more often they do now.

    . . . the amount of time people devote to LinkedIn is a fraction of the time people spend on some other social sites. Visitors spent about 13 minutes [*] on average at LinkedIn during October, while Facebook users logged about 213 minutes and MySpace users spent 87 minutes, according to research firm comScore, which measured the behavior of global users 15 years and older.

    [*Bob’s aside: Let’s do the “back of the envelope” math. 13 minutes divided by 4 calendar weeks in a month averages 3 minutes a week. 3 minutes a week divided by 7 calendar days in a week averages 30 seconds per day. How much career-advancing “networking” can possibly be going on?]

    LinkedIn is “not really a community as much as a collection” of names, said Brigantine Advisors analyst Colin Gillis. “They are definitely in danger of losing the business-networking market.”

    . . .

    One year later — an update by The Wall Street Journal:

    Excerpt from The Wall Street Journal “Money & Investing” Section
    (November 30, 2011, Page C16):

    “The $100 Billion Question That Looms for Facebook Fans”


    By Rolfe Winkler
    “Heard on the Street” Column

    According to comScore, 92 million unique visitors hit LinkedIn’s site world-wide in October and spent an average of 15 minutes [per month] on the site.

    Facebook had 790 million unique visitors who spent more than six hours [per month] on the social network. Google had more visitors, about 1.1 billion, but they spent less than four hours [per month] on its site.

    . . .

  3. Bob Henry says:

    While my comment about LinkedIn awaits “moderation,” let me proffer this “larger view” article.

    Excerpt from The Wall Street Journal “Marketplace” Section
    (July 7, 2014, Page B1ff):

    “Is Silicon Valley Investing in the Wrong Stuff?”


    By Christopher Mims
    “Keywords” Column

    Social networks that allow you to send only the message “Yo” to your contacts. Food-delivery services valued at $400 million. Startups that deliver rolls of quarters to your home (just $27 for $20 in change!).

    It isn’t hard, looking at a lineup like this, to conclude that Silicon Valley has jumped the shark. The entire Bay Area appears to have given up on solving anything but its own problems: those afflicting the same 20-somethings who are building these startups.

    That’s a pretty cynical take on what’s going on in technology. And what about Google or Facebook or Uber, all of which have transformed or probably will transform entire industries?

    But, to my surprise, the partners of one Silicon Valley venture-capital firm made the very same case to me: That their kind had lost its way — and, in the world of startups, money wasn’t flowing where it should anymore.

    “Do you believe there is more innovation today than 20 years ago?” asks Yatin Mundkur, a partner at Artiman, in Palo Alto, Calif.

    Mr. Mundkur doesn’t mean innovation in the areas of same-day delivery or “anonymish” social networks that seem to have more novelty value than staying power. Both of those categories are red-hot right now.

    What he does mean is the kind of basic research and development that transforms lives, in fields such as energy, medicine or food safety, rather than just optimizing advertising platforms.

    Consider this. The entire market for advertising is around $100 billion a year in the U.S. (Globally it’s close to $500 billion.) Yet the nation’s gross domestic product is more than $16 trillion.

    That means every venture-backed startup chasing advertising revenue is going after just 0.6% of the economy. Put in employment terms, the ad-related economy employs just a few million people, versus 140 million Americans whose job it is to do everything else.

    Still, the pursuit of advertising dollars includes about every startup that is going for scale first and says it will figure out how to “monetize” its users “once it has the eyeballs.”

    . . .

  4. Bill Haydon says:

    The internet is a great place to research a purchase and (sometimes) make one. That being said, I have NEVER bought something because of an online ad anymore than I have bought something based on a spam e-mail. What internet ads are really, really good at is reminding me of things that I did just buy or have already made a decision not to buy.

  5. Social Media ain’t no hula hoop. It is a new collection of ways to interact with people that will not die…but will very likely change. Any single platform may have a short shelf-life but not the collection.

    Some may decry the perceived loss of face-to-face contact, the distinction of the epistle, the 140-character blurt, cat videos, etc. but it is difficult to deny the reach any one person has now. Never in history has it been larger.

    By the way, can a product that was first sold in 1963 and is still being made and sold 50 years later truly be called a fad?

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