Are we in a social media bubble?

By | November 20, 2011

Of course we are!.   As obvious as it may seem to someone like me, as with any “bubble”, the majority of people will not be convinced until after it “bursts” to see the error of their ways.  A “bubble” is a economic trend defined by considerable investments that exceed the actual value of a product or asset.  The more money that companies invest in social media efforts without a clear understanding of the ROI, the larger the social media bubble will grow.  As Google’s third attempt to replace Facebook fails to make any significant improvements that might cause someone to switch ends up in the same way that Google Buzz and Google Wave have, the larger the bubble will become and closer it will get to “burst”. As I see it, the inevitable “burst” that is what makes it a bubble in the first place, is not going to happen for another year or two. This prediction is not only base on the cyclical nature of any economic bubble that happens every 10 years or so.  The single event that will trigger the burst will begin when Facebook goes public in 2013 and when the revenue expectations exceed that the actual revenue perceived, venture capitalists will pull out, and the stock will plummet.

How can I be so sure?  Just look at the facts.  The main source of revenue for Facebook comes from advertising.

While it is still growing every year, the rate of growth is slowing down. Currently, Facebook’s clickthrough rate is about .04%, and when compared to Google’s 8%, is not as profitable for many businesses with a limited PPC budget. Also, as users become more tech-savvy, are  less likely to be influenced by banner ads..

Still, as the most popular website in the world, with over 800 million users, there must be someway to capitalize on this phenomenon beyond just selling banner ads. And there is, as social media has become an invaluable tool for business, there are hundreds of third party companies that provide social media services claiming to be experts on how to make money on Facebook.  As the ROI of social media has yet to be determined, most of these social media “experts” still rely on banner ads to market their company. Even if they knew what they were doing, getting more people to “like” your page does not guarantee you more customers. With no ads on Google+ how does Google plan on making money?  Not even Mark Zuckerberg knows for sure, and has gone back to school to study business in hopes to figure it out. Let’s hope he does before it’s too late..