by Tony Fannin, President, BE Branded
Today, May 19, 2011, Linkedin became the first social media site to go public with an IPO on the New York Stock Exchange. I believe most analysts thought it would be a high-flying stock and a very successful IPO. In reality, it exceeded all expectations. Linkedin currently has a valuation of $3 billion. Here’s what I find interesting. The first social media site that went public is, at it’s core, a business site. It’s not that the IPO was a rousing success or that it has a premium valuation (though many would say it is “stupid” to think Linkedin was worth that much or could generate that much revenue). For all of the hype and attention to the “social graph”, geo-tagging, and even the collection of friends and followers, it was a social media site that catered to business that became the first IPO.
I know in some geek circles, the words “corporate”, “profits”, and “business” are taboo, I find it interesting that a site which embraces all of these taboos is not only the first social media IPO, but that it was a huge success. It didn’t just squeak by, but blew the doors off of any expectation. I know of several of my colleagues who have used Linkedin to connect their way into multi-million dollar deals. This is something the other social media sites can’t do (that I know of). For all of the social media purists, I wonder if they even claim Linkedin as one of “them”?
The category of social media gets a pass on having to produce any ROI on any time table while other types of investments have to produce ROI or be canned. I am puzzled on why that is so. Why can social media sites lose $200 million a year, doesn’t have any realistic plan on how to make money just to break even, and still have a valuation of $1 billion? This tells me that the sector is screwed up and a bubble may be about to deflate. Eventually, these sites will have to produce real cash, not just a bunch of followers and friends. (One of the flaws in the logic is of course you can get millions of users if it’s free.) Sometime soon, the social media category will have to start figuring out how to make money and earn their keep. The only one that is coming close is Facebook. The vast majority of social media sites are like the teenager who doesn’t work, but keeps asking for money to go out and have fun with their friends. As a parent, eventually, you’ll have to say “no” and force them to make their own way. Otherwise, all you are doing is raising a dependent child who couldn’t survive on their own. Same is true for many of the social media sites. They still need to go back and get funding from their investors (mommy and daddy) because they’ve yet to learn how to make it on their own.