Why the Social Media Revolution Is About to Get a Little Less Awesome
Social media, quack..quack..quack. The Facebook IPO continues to go down as a train wreck for investors and sign of confusion for social media. For those on the inside of the IPO, investing in Facebook has quickly become a burden. For those on the outside, it's more like: duh.
The Atlantic.com lays it down like this:
In the wake of Facebook's disappointing IPO, Paul Graham, the cofounder of the country's most famous and successful tech incubator, Y Combinator, sent an email to his portfolio companies predicting a shift in the way venture capitalists evaluated start-up potential. Before the public offering, companies that build a large audience were not under much pressure to build a revenue model to match. But "the bad performance of the Facebook IPO will hurt the funding market for earlier stage startups," he wrote, "possibly a lot, if it becomes a vicious circle."
Facebook's bad IPO wasn't an aberrational day. The company's stock kept dropping. And dropping. From $38, the offering price, into the $20's and below.
Very little about Facebook, the company, technically changed. Total users kept growing. Time spent on the site kept growing. Average revenue per user in the U.S., Canada, and overseas grew too. But not fast enough for investors, apparently.
But Facebook, as a symbol of the attention economy, had already changed dramatically. Before the IPO, the company's value was a debate. After the IPO, its value was a stock price. One side had said all along that no company had ever achieved Facebook's scale, reach, and mastery of an audience's time and attention without being worth $100 billion. Another side had said that no company such an undeveloped business model could possibly be worth even half that price. We don't know who's right in the long term, but in the short term the pessimists are winning.
And the victory of their argument is having repercussions across the industry. This morning, Business Insider reported that investors in Tumblr, the largest new social blogging platform, are demanding a business model to match the awesome growth in users.
"VCs feel the urge [to monetize] more now that the economic environment has changed," the source told BI. "Valuations have to be justified now. Things are different. Before it was like, you have a lot of users, that's great. Now it's like, okay, what are we going to do with them."
This is bad for start-ups in social media, for whom attracting investment was as easy as a one-pager on user growth and time spent per person as investors change the way that they price attention. But even more importantly, it's bad for you.
Yeah. As you can see, it's really good to invest in things that have no tangible precedence. In fact, wait, no never mind. In order to preserve any shred of decency, all that is left is to hack away at the foundations in which these social institutions are molded. Prepare for more sponsored pages on Facebook, and content on Twitter, as well as longer ads on Youtube and Pandora. In the mean time, Facebook continues to report an increase in users...not an increase in members. #fail.