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The Demise of Social Media

By Dave Lee on August 26, 2009

Dot-Com BombNetwork meltdown. Disabled accounts. Termination of service. Company failure. Layoffs. This nasty scenario is all too familiar for those of us who rode the dot-com, “Internet 1.0″ wave and subsequent crash in 2000 when the market lost more than $5 trillion in value.  Dot-com companies disappeared overnight.  Cool services …gone.

Fast-forward almost a decade and the warm glow of social media services is strong.  I’m a big believer in the use of social media to connect with family and friends and to build relationships with prospects and customers. I use a bunch of social media tools myself including Skype, Twitter, Facebook, Flickr, YouTube, LinkedIn, and others for both personal and business reasons.  The great thing is, most social media services are free … for now.

Once-popular social media services as a result of Web 2.0.

Once-popular social media services as a result of Web 2.0.

Now, I’m no economist, finance guru, or market analyst, but I’ve been around the block a few times and things are sure starting to feel a lot like the dot-com bubble a decade ago.  Just take a look at the image illustrated above of some of the application available today.  It seems the bubble is inflating quickly in terms of the number of tools that are popping up as well as the sheer hype around social media.  Seriously, how many online or offline events have you attended this year where a session, track, or the entire event was dominated by social media themes? Are the services really creating value for their users?  What’s the ROI?

Yes, I understand, times have changed; servers and bandwidth are much less expensive, it takes relatively less work to create software, and the Internet has “evolved.”  But, the free model only works if you cover the costs through ad revenue or an upgraded or sister service that generates the dollars (e.g., paid subscriptions).  I don’t see the majority of social media services doing very well in any of these areas.  I certainly couldn’t imagine paying a monthly fee so my Tweets get Tweeted faster!  Furthermore, as we saw in 2000, ad revenue can dry up extremely fast. So, will the bubble burst? Who will be left standing?  Which are most likely to successfully flip to a paid model?  Will we survive without Facebook and Twitter?

I’d love to hear your thoughts. Drop some knowledge in the comments below, I implore you to consider the valuation of such startups and the value they provide users.

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  • Nick Neilson
    The central fallacy of the dot.com bubble was that people would just start buying every single thing they buy in stores online because it's convenient. But really, I don't want to wait, I don't plan ahead, I'm not that organized, and at the end of the day, there's no real benefit. I might buy a subwoofer that way, but not household items. So, amazon wins and daipers.com loses.

    To me, the central fallacy of social media is that people who have significant interest in your packaged communications and persona are somehow going to become increasingly interested in your unpackaged, obligated, "it's hard enough to create my on-camera image - how am I ever going to find the energy and content to be interesting on a daily basis" persona.

    For some it will work because it's media. For most it won't work because it's social. Most people lack the attributes/skill-set to be attractive in social settings. Straight up - most people are not worth paying attention to more than once every couple of weeks. It simply takes that long for most people to create anything of value to show or say - especially in a commercial/capitalistic environment.

    People don't watch "The Office" because of how ridiculous it is, they watch it because of how twistedly accurate it is.

    I go back time and again to Dan Kennedy's hierarchy:

    Tools change constantly
    Tactics change frequently
    Strategies change rarely
    but Principles never change

    To me, everything on the image above is a tool with a nigh-irresistible new tactic attached to it. But, the strategy of generating interest in your business, product, or service crumbles when a business lacks the principles to effectively engage and satisfy a defined demand in a defined market.

    Perry did a really interesting post on his site here:
    http://www.perrymarshall.com/socialmedia/

    Simple question: "Anyone actually making money with it?"
    Aggregate of the 71 responses - "No but it sure seems like a good idea."

    BTW - Perry's one of the very few people that pumps out truly important content on a near daily basis.
  • Do these sites need to make money when they can pass-on so much linkjuice?

    When I where my opportunist hat, I see the strategic acquisition potential for failing social sites. I also see a big moral grey area developing. Could this opportunity be the new hat of SEO? I think so. I also believe that a governing agency is needed to monitor this stuff, as there is too much room for abuse. The rules need to be set. People with the utmost of integrity can get lost in SEO [meaning: are hacks cheating?]. I published a video presentation from Giovanni Gallucci to our blog that you may like watch. It's all about hacking your way to page1 within the rules [well, gaming them].
  • Dave,

    GREAT post. It's quite the dilemma to be solved. On one hand, you lose the simplicity and "hearing ears" when you charge for a service. On the other hand, people start to tune out when ads creep into their lives.

    All I know is that there is no such thing as a "free" lunch, and someone is going to have to pick up the tab!

    -Cody
  • Great point, Dave! The truth is we've all been through this before and your thoughts are eerily familiar. We all lived through those days and it wasn't pretty.

    The peripheral players in social media will disappear, but the major players will figure out a way to survive. The sheer power of Twitter is hard to deny, but again... no business model other than serving up the world's information in bite-sized tweets. In the end it's a news service... one that any major player would love to own, but (as is the case with YouTube) actually making money off it is another thing.
  • Dave,

    This is a great piece on social media -- specifically where all the free services are likely headed if they don't figure out a business model. Personally, I don't think it will be a complete 'bust' but may lead to the eventual decline of the "everything is free" mentality everyone has conditioned themselves lately.

    I believe that for general personal use, most services should stay free, but for professional/commercial use, these services can easily monetize access to aggregate user data including additional access to customize their presence on their applications. Facebook, for example could easily capitalize on this while still being viewed as 'good' in the eyes of their users.

    ~Joe
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