The Coming Social Media Bust?

Posted on May 23rd 2009

Social Media Bust

Something has been sitting in the back of my mind lately. It largely concerns when the social media party will come to an end. I sincerely believe things will be radically different in three years. From a strictly business perspective none of the major social media players (excluding MySpace) are making money: Facebook, Twitter etc. They're only accumulating more cost in the form of user registarations. Their income stream is close to non existent considering the hype surrounding their recent performance.

Don't get me wrong, these are cool tools. I use them every day for business connections, personal learning and professional growth.  However we all lived through the dot-com bust  - and know that companies that don't make money don't survive. Simple as that.  If I may take you back to 1999, webvan was supposed to make going to the grocery store a thing of caveman past!

I ask these fundamental questions because I am starting to think 2010 will be a make or break year for these companies. Just thinking out loud here but quite frankly I'm not the only one thinking along these lines. Here is something Doug deGrood wrote on AdAge recently:

I'm no economist, but my understanding is, in order for a medium to have commercial value, it needs to be, well, commercial. Hey, this is America, baby, that's how the game is played.

Who knows, maybe some really smart person will figure out how to open the revenue floodgates for Facebook, et al. Currently, the only thing they're generating is more users, which requires more bandwidth, which requires more capital, which, at some point (soon?) will require a boatload of ad revenue to satisfy the VC folks who ponied up the money for this worldwide digital kegger in the first place.

I am not trying to suggest that social media itself will go away. I an confident that the social web is here to stay. What I am wondering about though is the viability of the current business model of the companies providing social media services. In the end the failure of their business model will fundamentally alter the social media landscape.  New companies will certainly appear but the environment will be completely different.

Only time will tell I guess. Until then follow me on Twitter!

Image source: stuant63 (Flickr) shared under creative commons.

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ariherzog
Posted on May 23rd 2009 at 11:36PM

Like the dot-com bubble of ~1999 that burst open in 2001, rumors have flown for months of a similar burst which you relate. But I don't see the big players folding; rather there will be either integration with other services, e.g. look at FriendFeed, DandyID, etc; and/or adaptability with some combination of RSS, Email, Search, Mobile, etc.

A company to exist must be able to adapt to changing technologies; and few companies can do that without extensive code change, as we've seen Facebook do recently.

Oh, and if you admit social media is not busting anytime soon, why the blog post title? Linkbait?
heyangelo
Posted on May 24th 2009 at 2:58PM
I don't mind the scrutiny about where we are at; I am glad you voice your concern. That niggling feeling has been on a lot of people's minds. I hear them asking the 'after Twitter what?' questions. I am hearing another type of concern right now, with a small business helping I am helping out. It's a (yawn!) new media outfit but with a serious revenue model. To answer your question: what's the viability of the current business model of the companies providing social media services: Good, if you're prepared to zig while everyone's still zagging. Don't wait till these services change, plan for those radical changes. Some see speed breakers, others see course correction.
AllanHoving
Posted on May 29th 2009 at 10:41AM
I agree. 2010 will be the year of Paid Content. With so many potential revenue models, I suggest the best solution is a "payment aggregator" -- see my PayCheckr.com, which lets the user choose HOW (but not Whether or What) to pay.
Cheers!
Allan Hoving
jimtobin
Posted on May 29th 2009 at 12:33PM
Shailesh, I don't think there's any question that you're correct. People say Facebook is "worth" $10b, but nobody knows how they are going to make $10b. And with the cost of keeping it going, they need to figure it out fairly soon. They're not the only ones... Good post.
karenpost
Posted on May 29th 2009 at 2:01PM
I believe there will be survivors and sinkers. I hope my baby SM company (Oddpodz.com) is in the first group. I always find it interesting that the small sites like mine verses the mega sites like Facebook have an equal amount of challenges, just some have cash and some don't. Which in the end may be a blessing because it forces you to do more with less. Our site will be evolving again, the next phase has a solid business model. Our new game plan came about after reading a new book called The Social Media Business plan by David Silver. The book explores 18 rev channels ourside ad revs. The book is worth checking out if you have a social media site.
sghimire
Posted on June 2nd 2009 at 10:47PM
It seems like we all agree that the current model is not sustainable. It's important to "zag" and certainly innovate ways to deliver paid content, paid membership - basically any service with a "paid" in front of it has a better chance of surviving. I guess time will tell and the next 12-18 months are very important. BTW I'll have to check out "oddpodz.com".