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Is the Social Media bubble going to burst?

Posted by on 21/02/2011


Recently, Facebook was revalued at $67.5 billion on the SecondMarket, while Twitter was revalued at $10 billion, which brings up the question of whether a social media bubble is forming, and if it has, when will it burst?

Twitter has recently been in the minds of the folks at both Google and Facebook, with “low level” talks taking place regarding a possible acquisition. Recently many banking firms have been shelling out huge fortunes on technology and social networking websites in the hopes of turning some serious profits.

Marc Andreessen, the co-founder of Netscape, recently threw out $80 million on the micro-blogging site, with many others also investing huge sums in the firm. But with a company actually ending with a loss in 2010, how has it be valued at $10 billion? Back in 2009, the company was worth only $1 billion and then jumped to $3.7 billion last year. Is Twitter really that powerful to be worth that much?

One of the positive signs include the how useful it is in times of war and strife. For example, when the rebellions took place in Egypt, Libya and Bahrain, Twitter proved its success by helping disseminate messages from the war zone. Twitter also assisted in helping responders locate victims in the earthquake stricken Haiti.

Facebook’s valuation has officially been set at $50 billion, with an unofficial SecondMarket valuation at a whopping $67.5 billion. Most of the increases have been attributed to the 3rd party gaming network, Zynga and a $52 billion boost from Kleiner Perkins. Even though many of the 150 million users have invested in online games and advertising, will the trend continue for long?

Groupon has also been skyrocketing, due to the amount of deals they have on a daily basis. The company made $350 million in revenue at the end of 2010 and even turned down offers made by Google and Yahoo. Google has even gone ahead now to start work on a competitive site called Google Offers, which could put some pressure on Groupon if developed properly.

Finally the AOL media group has been acquiring blogs left, right and center. The latest acquisition came about after they purchased Huffington Post for $315 million. It seems to have been a worthwhile investment because Huffpost churns out about $2.3 million in revenue per month via their ads. Will the investment work out in the long run though? Folks from the inside have complained that AOL has the wrong goal in mind and is just looking to make profits by sticking in as many ads as possible on their blogs.

Authors have lost the drive to do their job because they are forced to focus more on making money rather than delivering ground breaking stories. Maybe that’s why Mashable has chosen to stay independent (at least that’s what they say).

With all these huge investments taking place, will it be worth it in the long run or will all the money go to waste in a bubble burst. So far, earnings on most of these social networks still seem shaky and throwing about all that money seems rather risky.


  • Paul Tagent

    How do people “value” social media sites? Is it down to the possible direct mail and advertising revenues? Either way, I am sure there will be another “big thing” along soon regarding online marketing/social media. After all, what ever happened to Friends Reunited?!

  • Bradley Wint

    Well that’s the thing. Investors look at in from the profit stand point I guess, how much can be made from advertising revenue or how profitable some of the 3rd party apps are (e.g. Zynga). As you raise the question of the next big thing…will it be called Social Media though, or will some completely new frenzy come about. Back in the last 90s and early 2000s, we had the DOT COM era. Now it’s called Social Media/Marketing, so what next.

    Facebook and Twitter obviously have some years again left in them but will they keep innovating enough to keep up with the every growing trends of society?

  • Cody

    I think it is hard to say whether or not a bubble with burst. Not all social media websites are funded by investors, take DIGG for example. From what I know they are making revenue and turning a profit.

    On the other hand Twitter is scary, they still don’t have advertising from what I know which is crazy that they can be valued at $10 billion when they don’t even make money. From what I know anyway.

    Facebook however is the Google of this decade I think. They are going to change the internet with bringing everyone together much like Google changed things by making search easy.

    I think there will be a bubble burst, however I don’t think it will destroy every social website out there, just the ones that can’t make money.

  • Bradley Wint

    True. Also Twitter has a Paid Tweet program which allows premium tweets to sit above other top retweeted messages in the search engine. However I think they get a lot of investments by big names. Huffington Post also used to survive off big investments, but I think they have become profitable enough via their ads.

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