Monday, 28 March 2011

The Social Media Bubble

We've already seen one internet bubble boom and bust around year 2000. Investors were investing in the dot com companies without even knowing the cashflow model or vision of revenue. Unjustified amounts were being invested. Venture capital was available and being used in plenty.

Currently we see a similar situation. Lots of VCs are putting their money in and around social media. Even the apps which are built around any of those social networks have heavy investments. The case is true many a times in scenarios where these apps do not even have huge user base. You must have seen colored wheel in coverage recently. Yes I'm referring to Color. They've spent $350K on getting the domain name and another $150K on getting It'll definitely enjoy the benefits of coverage but actual users  do not have wow feeling toward its app (It'll improve is another story!). If say 2 years later they decide to sell off the company will anyone pay half a million just for the domain names?

There are many startups without a good number of users for their apps (and in fact apps too without creativity!) but with ample of funding with them. In this battle field of social media there are of course a few winners/leaders like FaceBook and Twitter. FB has been valued $75billion while Twitter $10billion. At least in case of FaceBook there is a revenue model. But what about Twitter? Will you have same enthu and affection toward Twitter if it is being populated by ads? Of if you are being charged as user or have to pay per tweet?? Still I feel we should exclude these two examples from our discussion. They are really popular, have huge user base plus people are addicted to them (at least as of now.....but a few years later will you be doing the same??). Let us talk about the mobile and web apps around these popular social networks. Will they be able to give the expected returns to their investors?

It is high time to recheck whether the valuations are realistic or over-hyped. Else this bubble will keep expanding and reach its elastic limit soon!!

No comments:

Post a Comment