The Collapse of Social Media?

by Jay Deragon on 03/18/2010

Excessive weight on things not designed to carry lots of weight collapse. The same is true about current uses of social media and all things supporting its use, it may collapse.

Why am I saying this? It is simple, most of the people on Twitter don’t use Twitter regularly. Twitter growth is slowing down.  Only 30% of the members actually do it. Advertising on Twitter gets the same dismal response rates as everywhere else, 3% or less.

While the stats show usage growth of other sites like Facebook and Linkedin the corresponding click through rates on ads placed on these sites is static or decreasing.   Most of the people using search don’t click on the ads. Advertising has been the foundation  holding up all things social and sooner or later it will  collapse.

The fact is that advertising overall is feeling the pitch of the tight economy and increased demand for ROI. When ROI isn’t satisfying the stakeholder well they cut activity, budgets and new initiatives. All things social is brand new and while initially everyone is chasing it like the Holy Grail few find the golden nuggets that lie hidden in the shifting sands.

When The Hype Hits the Wall?

Charles Hugh Smith writes: It doesn’t seem like much of an exaggeration to say that investing and media circles are gaga over social media companies such as Twitter and Facebook. But it isn’t just their demonstrably significant cultural and media impacts that are creating a buzz. It is the prospect that they will generate a new wave of growth and wealth, much as Web 1.0 companies did in the late 1990s. Remember what happen in the 1990′s?

For example, DailyFinance recently reported on claims by some analysts that Facebook could be worth $100 billion by 2015 — fully half of Apple’s (AAPL) $200 billion market cap. The basic idea is that Facebook revenues could soon top $2 billion a year, and with a forward price-earnings ratio of 50, that equals $100 billion in market value. Except, oops, that $2 billion is revenue, not earnings.

Just for comparison’s sake, Apple’s first quarter 2010 revenues were $15.68 billion, generating $3.38 billion in net profit. Based on the expectations of $10-plus billion in net profits annually, Apple’s market cap recently hit $200 billion.

Where are the Golden Nuggets in the Sand?

Apple makes innovative things and sells them for use. Facebook, Twitter and Google create innovative ways that people use to communicate and find things and other people.  Google, Facebook and Twitter sell ads, Apple sells products. Each of their overhead cost represents people and technology.

If Google, Facebook and Twitter were able to match buyers with sellers in a non-intrusive way then their revenue could change from selling ads to selling utility to both buyers and sellers.  Apple’s products are aimed at increasing utility for buyers.

In economics, utility is a measure of the relative satisfaction from, or desirability of, consumption of various goods and services. Given this measure  if ads were replaced by increasing the utility (for a small transaction fee) from buyers and sellers behavior by matching intents (Doc Searls VRM) then the utility value of all things social would increase. Said increase in utility could represent  real revenue just like Apple creates and without ads.

Social media won’t collapse but it is likely to evolve into improved utility through innovations. Who will be first?

{ 27 comments }

card4net May 10, 2010 at 7:17 am

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Semacraft March 20, 2010 at 9:45 am

How utility could increase growth of social media http://ow.ly/1oKLR

Muchiri Nyaggah March 20, 2010 at 9:45 am

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Aaron J Danks March 19, 2010 at 11:33 am

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@Danny_Fr March 18, 2010 at 11:20 pm

I did an extensive post about this very topic last February, tell me what you think about it, if you have time :) :

http://dannyfr.posterous.com/google-vs-applevs-twitter-vs-facebook-could-t

Business 3.0 Tech. March 18, 2010 at 2:56 pm

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JDeragon March 18, 2010 at 11:53 am

When ROI isn’t satisfying the stakeholder well they cut activity, budgets and new initiatives http://bit.ly/9lO3uJ

smconnection March 18, 2010 at 10:17 am

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dan March 18, 2010 at 10:07 am

Jay;

Imaging Twitter turned down a 500M offer from Facebook just last year. So Facebook just copied them…

The next wave arrived. It’s called Foursquare. It has many (but not all) of the components of an innovation economy built on social media. It has a geo location focus (the last mile of social media as you have written about). It also lets people “become the mayor” of some place. This is a form of knowledge inventory that you have also discussed. It also has a vendor participation component largely favoring “services” as you have discussed in your articles citing VRM and the failure of advertising ROI. And, it pulls connections from facebook and Twitter.

Here is what they don’t have: A currency and a production system. People need to know exactly what they need to go and do in order to earn goods and services and it needs to be reflected by a currency that can be capitalized and securitized. We are almost there Jay. It’s going to disrupt so many things.

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