Lessons from Bubble 1.0 and 2.0 — Value for ALL stakeholders is key to success


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Bubble 1.0 was the dot-com frenzy. It popped when people realized a) you couldn’t lose money on every transaction and make it up on volume and b) monetizing eyeballs was not that easy.

Some notable failures were Pets.com, Webvan, and Boo.com.

Still, Google emerged as the biggest success story from the dot com meltdown. Google’s key innovation was monetizing its search experience with Adwords to sell ads and Adsense to publish them. It was a win for users (free search), advertisers (pay-per-click) and publishers (share of ad revenue). Brilliant.

Google IPO’d at $85/share in August, 2004 and doubled by the end of that year. GOOG now trades around $670/share.

Bubble 2.0 was Social Media. For the past 5 years or more, we’ve been hearing how social media will “change everything.” Sound familiar?

It’s true that free social media services like Facebook, Twitter, blogging, etc. have given an outlet for consumers to connect with friends and family, and to vent about politics, customer service or whatever they want. Brands are paying attention, because the downside of even one mishandled customer can result in Dell Hell or United Breaks Guitars (12M views and counting).

But where is the money in Social Media? That’s still the big question. Without funding, social media services will not be supported and improved long-term. Anyone been to Digg.com lately?

Facebook IPO’d at $38/share and has since lost nearly half its value. Zynga has done worse, and Groupon is being called social media’s Pets.com. Twitter still hasn’t figured out its business model — maybe they should sell to Yahoo before it’s too late.

The standout success is boring old LinkedIn. You know, that social media service for the “suits” — business people. LinkedIn’s user experience isn’t great, and can’t claim the same amount of user “engagement” (spending or wasting time, depending on your point of view) as Facebook. But LinkedIn has done a much better job of creating a solid business model that creates value for all stakeholders, including users, recruiters, advertisers and investors. Since IPOing at $45/share in May 2011, LNKD now trades around $100/share.

Lesson learned

Early investors in these IPOs can win while everyone that follows loses. For sustainable growth, all stakeholders must win.

Just like the dot-coms of a decade earlier, social media sites have done a good job providing free services, but most haven’t figured out how to pay the bills. I’m not optimistic they will, because the core issue is people don’t want to interrupt their socializing to view ads. The shift to mobile will just make matters worse.

Further reading:
* Reality check: Branded online communities outperform Facebook in consumer buying decisions
* Facebook is biggest loser in social media satisfaction ratings
* Facebook’s #EpicFail — Lack of TRUST by Users and Investors


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