A recent Financial Edge article suggested that social media is the next bubble, with over-hyped valuations, waiting to burst on an unsuspecting throng of investors. I have my doubts. Here are 5 reasons why I think the valuation of social media companies is largely justified:
- Facebook is worth $30 billion – Facebook’s $30 billion valuation is the target for most critics, yet Facebook isn’t just a network of 500 million people, it’s a marketplace where real money is spent and made. Zynga‘s games alone are worth tens of $ millions in revenue and there are thousands of developers creating new games, tools, networks and plugins for Facebook every day. It’s a global industry, employing (albeit indirectly) hundreds of thousands of people – so, I would say, justifiably highly valued.
- Social media is growing up – While many social tools and services started out as free, the industry as a whole is growing up to the fact that it HAS to make money. Groupon is setting the tone for social businesses by charging (some would say over-charging) a hefty fee for it’s services. MarketMeSuite, the brilliant social media marketing dashboard [disclosure: I’m an Advisor] charges $5.99/month. No freemium model. If you want it – you have to pay. And guess what? Customers are happy to pay for a great service.
- Media is as old as the hills – We all talk about social media being new, but in reality it’s just the latest evolution of “The Media”, which started out with the Ten Commandments and has’t stopped evolving since. Social media isn’t a blip or a passing phase – it’s the latest incarnation of something society absolutely cannot do without. The big difference is, we’re no longer reliant on news-makers for the story. We are the news-makers.
- Business is still slumbering – While most of us now use social media with friends, remarkably few businesses have realised the value of social media communications, for marketing, customer comms, PR, sales, research, product management etc. This is a massive industry still waiting to happen. Take social CRM for example. I predict that by 2012 most large businesses will be seeking to integrate the social web into their CRM systems (if they aren’t already), the investment will be huge.
- Twitter is still underestimated – For most of the businesses I advise, the most powerful social media tool available to them is Twitter. Yes, it’s messy and hard to understand, but there are tools emerging that monitor, categorise, store and organise the bites of information we share via Twitter, making it much more manageable and valuable. Additionally, in the same way as Facebook is a marketplace, Twitter currently powers thousands of small businesses via it’s API. It’s a whole ecosystem reliant on the host. If Twitter doesn’t get a similar valuation to Facebook, I’ll be investing.