Home No, We’re Not In A Social Media Bubble

No, We’re Not In A Social Media Bubble

Last in a five-part series.

In 1997, Scott Cherkin was the tenth employee and first salesperson hired by theglobe.com. Cherkin, now an executive vice president with Complex Media, remembers the company’s initial public offering, a year-and-a-half after he joined the company. At the time, theglobe.com had $15 million in annual revenue and no profits.

“While our IPO set records at the time, we were far from the exception of the time where venture capital was flowing like mad and IPOs were common,” Cherkin said.

This week, ReadWriteWeb has been looking at the current social media landscape and trying to answer the question of whether we’re in a social media bubble. While we have tended to side with the bears for most of the week, not everyone agrees with us. Today, we’re speaking with people like Cherkin, who think the current growth of social media is different from the dot-com boom (and subsequent bust).

“You will know a bubble when you see a brand new social network raises $20 million, or $50 million or goes public when you’ve never heard of them” – Scott Cherkin of Complex Media.

The Numbers Don’t Add Up To A Bubble

Yammer’s co-founder and CTO, Adam Pisoni, points to his company’s performance last year, when it tripled year-over-year sales for its enterprise product. That’s in line with what he’s been seeing in the broader social media space.

“The rate of adoption looks a lot more like boom than bust. 49% of companies will have investments in social networking solutions in 2012, while social enterprise apps and related services will grow at a compound annual growth rate of 61% to become a $6.4 billion market in 2016,” he said, citing statistics from reports released this month and in November by Forrester Research.

Mike Crosson, publisher of the social media news site Social Mediopolis, almost takes a “too big to fail” stance when arguing why social media has not entered a bubble.

“Social media has become integrated into our personal and business lives in ways that never existed in the past. It has become a glue that holds together and enriches relationships,” Crosson said. “That will not go away. The wild popularity of sharing sites such as Facebook, Pinterest, YouTube and Flickr have proven this.”

Times Have Changed

Cherkin says both Wall Street and Silicon Valley have learned lessons since the 1990s. Today, “it is hard to go public with less than $100 million in revenue. Facebook did it with $3.7 billion in revenue and $1 billion in profits last year. LinkedIn did over $500 million in revenue in 2011, up 115%,” he said. “These are real companies that are growing like weeds.”

If Facebook has a valuation topping $100 billion following its IPO, as most observers expect, it will be valued at 25 times its 2011 revenue. Following its IPO last year, LinkedIn was valued at 22 times its 2010 revenue.

“Both of these feel high, but until they miss numbers, this is what the market sees as their long-term potential,” Cherkin said. “And for Facebook to spend 1% of its valuation on Instagram certainly seems like a small amount to pay for such a strategic asset.”

Don’t Judge A Bubble By A Single Deal

Experts on both sides of the debate caution that it’s too soon to say whether Facebook’s Instagram was a bargain or a ripoff. And experts on both sides of the debate frequently dismissed arguments in interviews last week that it was hastily carried out.

“There was similar bubble speculation around Google’s acquisition of YouTube for $1.6 billion,” said Stephanie Critchfield of social marketing firm Engauge. “Google knew exactly how it was planning to monetize YouTube, and similarly, the argument can be made that Facebook has an idea of how it will monetize Instagram.”

The bottom line for experts who do not believe in the emergence of a social media bubble is that the companies being discussed this time around are proven players with identifiable business models.

“You will know a bubble when you see a brand new social network that raises $20 million or $50 million or goes public when you’ve never heard of them,” Cherkin said.

Prior stories in this series:
-Part 1: Experts See Parallels Between Dot-Com, Social Media Bubbles
-Part 2: Who Will Survive the Social Media Bubble?
-Part 3: Fear and Speculation Drove Facebook’s Instagram Buy
-Part 4: Is Now the Time to Launch Your Social Startup?

Image courtesy of Shutterstock.

About ReadWrite’s Editorial Process

The ReadWrite Editorial policy involves closely monitoring the tech industry for major developments, new product launches, AI breakthroughs, video game releases and other newsworthy events. Editors assign relevant stories to staff writers or freelance contributors with expertise in each particular topic area. Before publication, articles go through a rigorous round of editing for accuracy, clarity, and to ensure adherence to ReadWrite's style guidelines.

Get the biggest tech headlines of the day delivered to your inbox

    By signing up, you agree to our Terms and Privacy Policy. Unsubscribe anytime.

    Tech News

    Explore the latest in tech with our Tech News. We cut through the noise for concise, relevant updates, keeping you informed about the rapidly evolving tech landscape with curated content that separates signal from noise.

    In-Depth Tech Stories

    Explore tech impact in In-Depth Stories. Narrative data journalism offers comprehensive analyses, revealing stories behind data. Understand industry trends for a deeper perspective on tech's intricate relationships with society.

    Expert Reviews

    Empower decisions with Expert Reviews, merging industry expertise and insightful analysis. Delve into tech intricacies, get the best deals, and stay ahead with our trustworthy guide to navigating the ever-changing tech market.