Thursday, June 14, 2012

Who's Winning the Battle of the Social Networks?

Who's winning the battle of the online social networks? This screenshot, taken from a page I was just reading, speaks volumes:
The network externalities in the market for social media are perhaps too powerful for anyone to really compete with Facebook in the near future. Whether or not Facebook can fully monetize this dominance is another matter. Facebook's tumbling share price since its IPO indicates that investors are having some of the same doubts I have long expressed about the free-service/advertising-revenue model on which companies like Facebook are based. 
   As an investor, it's important not to confuse dominance over culture with profitability. Yes, Facebook has changed the culture of the entire world. But how much revenue does it have to show for it? Some, but not enough to maintain that IPO price. Perhaps Facebook has only grown to dominate because, to quote the Facebook log-in page: "It's free and always will be." Maybe the success stories of Facebook and Google, and other similarly monetized web-based companies are not the tales of the triumph of innovation they have been hyped to be, but are stories that prove something completely unremarkable: that people like to pay less for things. Yes, people like free stuff, people love free stuff. People will spend their time and energy to get "free" stuff. But there's one thing they won't do, and that's pay for it.

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