Fads and Bubbles
Morris Kaplan, one-time stockbroker and venture capitalist, brings his finance skills and recent experience as a business journalist and writer to IT, with a special interest in telecoms and how communications is being transformed by technology.
Near faddish demand for daily deals sites and an almost unbelievable amount paid for a small slice of Facebook are causing some commentators to suggest that the social networking space is another bubble waiting to be burst – only this time it’s almost as big as the sub prime debt bubble that nearly brought Western economies to their needs two years ago, and much, much bigger than the dot.com bust of 1999-2001 where thousands of internet hopefuls were cast to the corporate waste dumps.
The significance of the internet statistics is that in the USA, 200 million users access their sites through their smart phones! In the red hot online deals-of-the-day sector, one US company, Groupon, says their members have collectively participated in close to 25 million "groupons," or group purchase transactions; again, most of them on their smart phones.
Colin Fabig, CEO of local deal of the day websites Jump On It and Living Social in Australia, says the latest Nielsen Netview says that merchants aiming to reach more customers a listing on both sites can access a combined web audience of 928,000. Most receive their email notifications daily by email over their smart phones. That’s lot of traffic and traffic that is clearly important to the telcos. They would certainly be hoping that these trends continue
Let’s reflect for a moment of that great fissure that melted down Bear Stearns as well as nation states such as Iceland and more recently Greece. The US sub prime mortgage crisis was one of the first indicators of the 2007–2010 financial crisis, characterized by a rise in sub prime mortgage delinquencies and foreclosures, and the resulting decline of securities backing the mortgages. After U.S. house sales prices peaked in mid-2006 and began their steep decline thereafter, refinancing became more difficult and, mortgage delinquencies soared. Securities backed with mortgages, including sub prime mortgages, widely held by financial firms, lost most of their value. Hence the meltdown of a number of high profile corporations, countries. Effects on global stock markets due to the crisis have been dramatic. Between January and October 2008, owners of stocks in U.S. corporations had suffered about USD$8 trillion in losses, as their holdings declined in value from USD$20 trillion to USD$12 trillion. A seriously big bubble burst.
What we are seeing in the social media space is nothing short of alarming or amazing depending on which position you take: either a bubble forming or the beginning of a whole new era of wealth creation. Goldman Sachs recently sold shares in Facebook at a value of USD$50 billion, a price greater than that of Nike, Target, eBay, and General Motors, to name just a few. Under the terms of the deal, Goldman has invested $450 million, and Digital Sky Technologies, a Russian investment firm that has already sunk about half a billion dollars into Facebook, invested $50 million. As part of the deal, Goldman is expected to raise as much as USD$1.5 billion from investors for Facebook at the USD$50 billion valuation, people involved in the discussions said,
Data coming out of the US suggests that inn 2010, domestic online advertising spending increased almost 14 percent to USD$25.8 billion, and for the first time surpassed newspaper ad spending. And numbers of active users in Facebook appears unstoppable with close to 10 percent of the world's population using it! And as far as deal of the day company, Groupon they are not shy to tell us that the site now has more than 50 million subscribers who have collectively participated in close to 25 million "groupons," or group purchase transactions.
So, we are left with questions not answers as to whether we are watching the bubble inflating or seeing the early stages of a new movement that will continue to transform how we all shop, connect, and live.