Thread: Are Social Sites Really the Wave of the Future?

You have some interesting thoughts on this topic.

Originally Posted by memenode

I don't see why going to a social media site makes it a weak concept. It's no worse than having to pick up the phone and dial a number, or choose a contact on a smartphone.

As for public and semi-public communications, that's actually just the expanded form of communication that's added on to the typical private communication. It doesn't really take anything away from the original concept of communication. Furthermore, how public it is, and what exactly is shared depends from person to person. Overall, it just seems like communication on steroids, combined with a few other things.

Going to a social media site is not the weakness in the concept. The weakness is because it is more like going on a mass blind date rather than direct one-on-one communications. The concept of traditional communications is altered with social media. The weakness is in the lack of sustainability for business concepts like MySpace. The strength in social media sites is that they give people a chance to be heard by other people around the world who would otherwise never know that they existed. Psychologists refer to social media additions as a cry for help. Yeah, it is like communications on steroids. Steroids can also be addictive when they fill a psychological need.

Originally Posted by memenode

At best, this just means bad news for proprietary operators of social media such as Facebook and Google.

Aren't all major social media sites proprietary in nature? Each tries to create a new and unique experience. And their value is based upon a perceived value (fluff) rather than a real value. That's why MySpace sells for $580 million at one point and $35 million at another. Would you bet against it being worth much less in another year? Whether a site is proprietary or not, once users start to migrate away to the newest popular experience, the fluff dries out and the perceived value plummets.

Originally Posted by memenode

It could be said that Email too isn't profitable enough, but that didn't stop it from being one of the fundamental means of online communication.

Email is not a company nor an organization and it was never intended to be profit-oriented. It is free tool that has been around for almost 40 years and is a very efficient and cost-effective means of communication. It doesn't need to be profitable like a company. It was also never intended to be form of mass communication--unless you are a spammer.

Originally Posted by memenode

That said, leverage that social media can provide its operators probably shouldn't be underestimated. I doubt Google is really "stupid" for betting just about their entire company on Google+. Why would they do this if there wasn't some kind of a business argument to be made of it? Using social media signals to improve "organizing information" is possibly just the most obvious example of how can social media serve as leverage for a related business (such as search).

Google always has a motive behind their actions. Either it is to make money or collect information. If it doesn't do one of both, they drop that service.

Originally Posted by memenode

Isn't that true for just about any online business, except perhaps for e-commerce with their own stock inventory?

That is true especially if they are not based upon anything of real value. The value of a social media site at any one point in time is strictly based the current demand for their services. That makes them a fad if the concept is not sustainable.

Originally Posted by memenode

Well, yeah, if they don't have any particular goal to their chatting (that is, their social strategy sucks) then yes.

Forums are one of the few forms of social media that have merit for exchanging valid business ideas. Like email, forums were around before the concept of social media arose, so they are not really part of the "new media" experience. There isn't much benefit to a business if their employees spend several hours a day on FaceBook or Twitter. FaceBook may be some of the ultimate fluff and could be the next big player to fall from graces.

You are absolutely correct that FaceBook was a big improvement over MySpace. What do you think FaceBook will be worth when the next social media idea comes along that draws all of its users away? That is the problem with the concept for many social media sites. There is no real value or sustainability, which means that they are based upon a weak concept and will become another passing fad.

Originally Posted by TopDogger

You have some interesting thoughts on this topic.


Going to a social media site is not the weakness in the concept. The weakness is because it is more like going on a mass blind date rather than direct one-on-one communications.

I still don't get what the problem is here. You can very easily select a person you want to send a private message to, just as with SMS or Email. That you can also share stuff with all your friends at once doesn't take away from private communication, and is again something you have control over. You decide who your friends are, how much is visible to others, and what exactly to share. It's not that different from offline socializing where you have private one-on-one and semi-public modes of communications (gatherings, parties etc.).

You almost sound like you didn't even use social networks much, or Facebook in particular, but have a bias against them.

Originally Posted by TopDogger

The strength in social media sites is that they give people a chance to be heard by other people around the world who would otherwise never know that they existed. Psychologists refer to social media additions as a cry for help. Yeah, it is like communications on steroids. Steroids can also be addictive when they fill a psychological need.

A lot of things fill a particular psychological need, very normal and healthy things at that.

Originally Posted by TopDogger

Aren't all major social media sites proprietary in nature?

All of the major ones right now, but Diaspora is an open and decentralized network, albeit still in early stages. The point is that social networks do not have to be proprietary.

Originally Posted by TopDogger

Each tries to create a new and unique experience. And their value is based upon a perceived value (fluff) rather than a real value. That's why MySpace sells for $580 million at one point and $35 million at another. Would you bet against it being worth much less in another year? Whether a site is proprietary or not, once users start to migrate away to the newest popular experience, the fluff dries out and the perceived value plummets.

All value is perceived value. Values are completely subjective things. You might as well describe anything else in the market in that same way, and call everything a fad. The only difference is value variability, but all value is determined by demand according to subjective / perceived valuations of individuals. So, of course, this means that sometimes some things are gonna lose value while some other thing gains, based on people's shifting demands.

Originally Posted by TopDogger

Email is not a company nor an organization and it was never intended to be profit-oriented. It is free tool that has been around for almost 40 years and is a very efficient and cost-effective means of communication. It doesn't need to be profitable like a company. It was also never intended to be form of mass communication--unless you are a spammer.

You were arguing that social networks are unsustainable because they have trouble turning a profit. I only mentioned email as an example of something that, as you say, isn't profit oriented and is yet very popular and valuable. It simply adapted to a decentralized model, and so will social networks if they have to.

Originally Posted by TopDogger

Google always has a motive behind their actions. Either it is to make money or collect information. If it doesn't do one of both, they drop that service.

And collecting information helps them make money. It's a leverage I was talking about.

Originally Posted by TopDogger

That is true especially if they are not based upon anything of real value. The value of a social media site at any one point in time is strictly based the current demand for their services. That makes them a fad if the concept is not sustainable.

If that makes them a fad then everything is a fad. The value of all things in the market is based strictly on current demand for them.

Originally Posted by TopDogger

Forums are one of the few forms of social media that have merit for exchanging valid business ideas. Like email, forums were around before the concept of social media arose, so they are not really part of the "new media" experience. There isn't much benefit to a business if their employees spend several hours a day on FaceBook or Twitter. FaceBook may be some of the ultimate fluff and could be the next big player to fall from graces.

Again, depends on how they use it. If they can make use of forums for business purposes I don't see how they can't use Facebook. Can they share information about their company? Yes. Can they make contact with potential customers? Yes. Can they market and hype up their products and services? Yes.

Originally Posted by TopDogger

You are absolutely correct that FaceBook was a big improvement over MySpace. What do you think FaceBook will be worth when the next social media idea comes along that draws all of its users away? That is the problem with the concept for many social media sites. There is no real value or sustainability, which means that they are based upon a weak concept and will become another passing fad.

Facebook will be devalued when demand for it vanes, of course. That's basic economics. What may not be devalued is social networking. Someone will just do it better, and people will flock to that.

Originally Posted by memenode

I still don't get what the problem is here.

I think you misunderstand what I am saying. I never said that their was a problem with social networks. The question is whether or not they are fads. I think they are because of the weaknesses in their business models due to the reasons that I pointed out. They are, after all, businesses that are way over-valued based upon nothing of actual value. They makes them subject to failure and a rapid decline in value at any time.

Originally Posted by memenode

Facebook will be devalued when demand for it vanes, of course.

By definition, that's a fad. MySpace was a fad and did not have a sustainable business model. It will probably never recover its past glory. The same thing will happen to other social networks as something newer and better draws people away.

Originally Posted by memenode

All value is perceived value. Values are completely subjective things.

Not when it comes to business evaluations. Every accountant in the world will disagree with that statement. Business evaluations are normally based upon hard assets, profit history and projected revenue streams. There are proven formulas that have been used for years for determined the actual price someone should be willing to pay for a business. I have not idea as to how you would realistically evaluate a social networking business as worth hundreds of millions of dollars, especially when it is not profitable and has few assets. Perhaps the hard lesson learned by News Corp will keep the selling prices for some of these companies down to something more realistic.

Originally Posted by memenode

And collecting information helps them make money. It's a leverage I was talking about.

Google makes more than 95% of their income from AdWords. They only collect a small amount of information through AdWords. The real question is about what they do with all of the other information that they collect. There is no clear way for them to use or leverage most of the info collected--at least nothing that they are willing to talk about.

You are right in that I don't see much real value in most social networks. Yeah, most of them are fun toys and they are entertaining for people who participate, but they are way over-valued and are not sustainable over the long run. That makes them a fad.

I am not telling you in any way, shape or form that you should not participate in social networks, especially if you enjoy them. If you enjoy it, do it. That's your choice, but that is not the topic of this thread.

@memenode and Topdogger: I just read through all you posts and enjoyed reading them. I should have been move specific to say: "Are Social Sites Really the Wave of the Future for Business?"

Originally Posted by memenode

It could be said that Email too isn't profitable enough, but that didn't stop it from being one of the fundamental means of online communication.

This is a good example. People can use free emails and businesses can set up their own exchange server or use business solutions like blackberry. Both the free email and business email are valid. But, business email is a tool whereas free email is a service. So, people like the free services from Facebook. But is this a useful tool for business?

I'd say that social networks can be successful for certain types of businesses that have the ability to build up a large list of followers who are very interested in what the business offers.

Are social networks the wave of the future for business? I have not seen any evidence of that. They are still mostly play things for web users. Someone has to come up with a good idea for a social network that focuses on businesses. Right now, the closest thing to that is probably LinkedIn, but that mostly focuses on individuals.

Originally Posted by TopDogger

I think you misunderstand what I am saying. I never said that their was a problem with social networks. The question is whether or not they are fads. I think they are because of the weaknesses in their business models due to the reasons that I pointed out. They are, after all, businesses that are way over-valued based upon nothing of actual value. They makes them subject to failure and a rapid decline in value at any time.

I said "problem", but I meant "something that would make it a fad". I wont argue whether they are currently over-valued, but I don't believe that they have nothing of actual value.

Originally Posted by TopDogger

By definition, that's a fad. MySpace was a fad and did not have a sustainable business model. It will probably never recover its past glory. The same thing will happen to other social networks as something newer and better draws people away.

If anything whose value drops as a result of waning demand is a fad, then any business is potentially a fad, as well as any business which has been in operation for a long time, but then went out of business. I know that's not quite what you're saying, but I think it comes down to what you argue below:

Originally Posted by TopDogger

Not when it comes to business evaluations. Every accountant in the world will disagree with that statement. Business evaluations are normally based upon hard assets, profit history and projected revenue streams. There are proven formulas that have been used for years for determined the actual price someone should be willing to pay for a business. I have not idea as to how you would realistically evaluate a social networking business as worth hundreds of millions of dollars, especially when it is not profitable and has few assets. Perhaps the hard lesson learned by News Corp will keep the selling prices for some of these companies down to something more realistic.

The thing is, philosophically and rationally, value is subjective, and cannot really be otherwise because value can only be assigned by beings capable of assigning value (such as humans). In contrast, a rock or a tree or Earth itself aren't capable of saying "this is good and this is bad" or "this is better and this is worse" or "this is worth more and this is worth less". So when we look at businesses and what their value is, this value is 100% dependent on an aggregate of how much other people valued them recently, and at present.

Accountants with their formulas are probably just good at analyzing what (and how much) people have valued before and making reliable estimates of what they value today and in the future. There are of course some things which most people value all the time, and other things the value of which is less stable, but none of that makes value any less subjective.

The way I see it, something is a fad only if it can be proven that their value is too fickle and could fizzle out at any moment because it isn't based on something long term, but a short lived phenomenon. The reason I argue social media is not a fad is because I don't think that the sensibilities it plays on are short lived. I think people will continue to demand it, one way or another, in the long term because it reflects something fundamental within current human nature.

At best then I can agree that Facebook is a fad (though to me that's almost meaningless since the only real issue seems to be that some people put the wrong number on their assessments of how much people value Facebook, not that people don't value Facebook at all), but not social networking in general.

As for businesses, we did argue a bit about that too earlier. Facebook may not be the best for businesses, aside for marketing to some, but that doesn't exclude social networking in general. There's Facebook, and then there's something like LinkedIn and maybe Quora. Facebook doesn't necessarily represent all that social networking can be.

There is a difference between value (which I agree is subjective) and business evaluation (which sets a price for the business). Accountants do not use subjective numbers in their evaluation estimates for a price, other than something called "good will", which is mostly related to future growth expectations and the perceived value of a brand. I've been involved in several small and large international business purchases over the years and it always works the same. There are several different methods for determining a price, but it is always based upon hard assets (cash, inventory, real estate, etc.) and predictable revenue streams.

It appears that News Corp very mistakenly used good will as the primary basis for the $580 million that they paid for FaceBook. There were very few hard assets and there was very little revenue, so there wasn't anything for accountants to use to set a fair price. I hope their experience demonstrates to others how to NOT set a price for a social network business. That situation was actually very similar to the dot com fad of the late 1990s, where investors were paying for the chance to make money when a company went public, but 90+% of the business models for dot coms were unsustainable. The businesses themselves were mostly based upon BS and the investor frenzy was a fad. When the fad ended, most dot coms went out of business and investors lost lots of money. It also demonstrates that not all investors make wise choices, which was also the case with News Corp. I predicted several years ago that FaceBook was doomed to failure when it became dominated by teenage girls. Teenage girls do not usually have the ability to spend a lot of money.

Don't forget that most businesses fail due to poor management or the inability to evolve and adapt to changing market conditions. If the total demand drops dramatically for the product that a business sells, and the business cannot adapt and fails for that reason, then the business was indeed based upon a fad and an unsustainable business model. Not very many businesses fail for this reason.

That would be MYSPACE, not facebook.

I think we don't disagree as much as it seems we are on the issue of value, just think in somewhat different terms. I don't really see a fundamental difference between "value" and "evaluation", whether of businesses or something else. It's still value that is being measured. The difference is just in how solid an estimate can you make of something. When you mention "hard assets", they're still subjectively valued. It's just that the chances of their value diminishing very significantly are far lower than some other things. In other words, I think that when you refer to non-subjective values you're just referring to subjective values which are much more stable and predictable, enough to appear as objective as the existence of rocks and trees.

I'm not gonna beat that horse anymore though. Bottom line is, my gut tells me social networking is here to stay because it's value is derived from something important to all human beings (socializing, connecting, communicating, sharing etc.). These human sentiments are simply going online, hence manifesting in these still imperfect social networks. Facebook may eventually fall, but social networking will live on in other better forms which might serve both businesses and "consumers" better. There may be disagreements over that, but ultimately we shall see.

Meanwhile we know what the situation is right now. Google is betting the company on social stuff, and integrating (or "polluting" by some opinions) even search with it. Bing does it too. People who dislike this (and personalization bubbles that go with it) can go DuckDuckGo, so there. The stage is set. Game on.

When it comes down to it the real difference between value and evaluation is how someone puts a price on something. A person thinks something is a good value if they pay less than what it is actually worth. The price assigned through an evaluation determines what it is actually worth. There is usually a gap between the two in a tough market like we are currently experiencing.

I agree that social networks in some form or another are here to stay. Each one will have their day in the sun, but will probably fade off into oblivion eventually. A better mouse trap will replace inferior mouse traps.

I also agree with people about the polluting theories. I think Google has made a mess of their search results and they may be straying from their core competencies with the push into social networks. They are probably doing it because they have so much cash that they don't know what to do with it all, so they are investing in other web technologies. Regardless of what they do, they will still make their money through advertising. Social networks will just expand the scope of their advertising.

Originally Posted by iowadawg

That would be MYSPACE, not facebook.

You are correct. I did mean to say that MySpace was doomed to fail once it became dominated by teenage girls. My bad.