Break Out the Bubbly

By Paula Bernier May 24, 2011

Is social networking a great new way now to connect with friends, family and long-lost buddies? A mechanism to drive work productivity? And the best thing to hit Silicon Valley and Wall Street in a long, long time?

Or is social networking just another way for braggers to brag, cheaters to cheat, and stealers to steal? A drag on productivity? And the next-generation version of the dotcom bubble?

Well, I suppose it depends upon who you talk to. But it certainly is getting interesting.

While some companies in the communications space try to impress upon us how important social networking has become, and how it’s become so entwined in the fabric of our everyday lives that businesses should embrace it and leverage it whenever possible, other folks are throwing on the alarm.

Recent reports decry Facebook and Twitter as workplace time drains. For example, a survey by market research firm uSamp says that the “proliferation of collaboration and social tools designed to increase productivity is actually costing businesses millions of dollars per year in lost productivity.” And it goes on to say that more than half of workplace interruptions are due to communications tools including e-mail, instant messaging, text messaging and social networks.

Of course, this all is probably completely beside the point, as where there is money so there is momentum.

The initial public offering of LinkedIn showed there most certainly is a lot of mo on both fronts in the social networking space.

Indeed, the offering – which soared 100 percent just minutes after it hit the market – blew the roof off expectations. And, as CNN reported in the wake of the May IPO: “When the dust settled on LinkedIn's IPO on Thursday afternoon, the company was valued at $8.9 billion, making it worth more than household names like JC Penney, Electronic Arts and Chipotle.”

But if you think all this is exciting, fasten your seatbelt. The much-anticipated IPO of Facebook is expected to be in the neighborhood of $76 billion. And, pre LinkedIn IPO, some folks were putting Twitter’s value at more than $7 billion.

So what’s going on here, and what does it all mean?

Well, as I mention in my Top of Mind column in the June issue of INTERNET TELEPHONY magazine, cloud computing is enabling companies like Facebook to reach large audiences quickly and affordably. A recent New York Times article quotes Ben Horowitz, a co-founder of venture capital firm Andreessen Horowitz, saying this: “There’s never been a company ever that has grown as fast as Groupon or Facebook, because no one could reach such a big audience so quickly.”

He goes on to say that, “The ability to build a company that gets to $1 billion in revenues in less than two years is unprecedented.”

The New York Times piece goes on to report: “In the post-recession environment, young entrepreneurs are finding relatively easy access to capital, as venture capitalists open their wallets wider and a new crop of angel investors move in. Venture capital investments rose 19 percent, to $21.8 billion in 2010 – the first annual increase since the downturn, according to the National Venture Capital Association. The number of angel investors, meanwhile, surged 22 percent to 727 last year, according to data from research firm CB Insights.”

That’s all great news for investors and many folks in the tech community, of course. But is this also, as many have suggested, just irrational exuberance that could lead to the next big bust?


A May piece in The Economist notes that things are different now given there are a whole lot more people connected to the Internet today and given that many of the companies that crashed during the dotcom era had little or no revenues.

“In one respect the optimists are right,” The Economist piece says. “This time is indeed different, though not because the boom-and-bust cycle has miraculously disappeared. It is different because the tech bubble-in-the-making is forming largely out of sight in private markets and has a global dimension that its predecessor lacked.”

On the other hand, the piece notes that the global dimension is exactly what could bring this whole thing crashing to the ground. Noting the high valuations that some of China’s tech companies are seeing, the piece says that could lead to unrealistic valuations elsewhere. And then there are all the political risks to consider, given the sensitivity to content in China.

Edited by Jennifer Russell

Executive Editor, IP Communications Magazines

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