The Wall Street Journal ran an article today “Silicon Valley Faces Private Sanity Check” about the concern that Social media companies are valued too highly. I have been concerned about this for a while.
It seems that some prominent tech stocks like Apple are propping up the SP index. If a handful of high achiever tech stocks suddenly burn out and go down then that could hurt the SP index.
If Social Media stocks are ultimately viewed as unsuccessful then that could influence other tech stocks and influence the entre stock market.
The business like reason for investing in Social Media is because they allegedly are a better way for a business to recruit clients either for free or by paying for ads. If businesses are unable to make this goal become possible then they will withdraw from Social media websites and the websites will go bankrupt. The Social Media boom in Silicon Valley began in January, 2011 and is going full blast. In the 25 years of working in Silicon Valley I have seen most successful companies fade to obscurity after a few years of glory. My concern is that three years after the current Social Media boom, by 2014, the boom will have become discredited and will retreat into mediocrity. Consumers are learning that they had better be careful what they do on Facebook to protect their privacy and they have learned to be reluctant to click on a “like” button on Facebook and have learned to be reluctant to buy advertised goods on Facebook. People have learned to be cynical about searching on Google because of all the spammy web pages trying to get unwarranted publicity. I think eventually businesses will decide that Social Media does not work in terms of being a way to market their company’s products. This means that Social Media as a business will fail and will evolve into something different, probably as a money losing attention getting subsidiary of a successful traditional company.
Think of it this way: if all the businesses try to find new customers via Social Media where will those consumers get extra income with which to buy extra goods and services? This parallels the concept of the real estate bubble where people thought home prices would keep going up, yet they did not bother to ask how will new home buyers be able to afford to buy exorbitantly priced property. In both Social Media and real estate bubbles no thought was given to the ability of real live human beings known as customers or home buyers to actually afford to pay for and buy extra goods and services. The proponents of Social Media tell companies that they should get people to “like” their product on Facebook or place an ad on Facebook but there is no proof those strategies actually provide sustainable, profitable sales to companies. If every business places ads on Facebook then those businesses are not going to get any net gain in sales because of the competition between the businesses and because consumers don’t have extra purchasing power to buy more things.