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Social Media Bubble Pops Before It Fully Inflates 200

Posted by Unknown Lamer from the pop-pop-pop dept.
bdking writes "Groupon's IPO plans are melting down. Facebook has pushed back its IPO to next September. And now Zynga reports a 95% reduction in sequential quarterly profits. So much for the social media IPO bubble." At least everyone is getting let down before a lot of people lose a lot of money this time around.
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Social Media Bubble Pops Before It Fully Inflates More

Social Media Bubble Pops Before It Fully Inflates

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  • I was rather looking forward to shorting them.

  • Zynga? (Score:3)

    by LWATCDR ( 28044 ) on Tuesday September 27, 2011 @04:35PM (#37532362) Homepage Journal

    People are have gotten tired of those stupid games.
    Facebook is making money and a lot of it.
    Groupon. I used it once of movie tickets. People can only go out to eat and got to the spa so many times.
    I don't think it is too much of a bubble. Much like the first time around the good will survive the stupid will die off.

    Of course you should come to my new social media site. It is for people that are in deep emotional relationships or want to seek relationships with one eyed Episcopalian kangaroos. I am pretty sure it will be the next big thing.

    Fetish courtesy of Neal Simon's Goodbye Girl.

    • Re:Zynga? (Score:4, Interesting)

      by Cinder6 ( 894572 ) on Tuesday September 27, 2011 @05:00PM (#37532684)

      Two problems with Groupon that I've seen after briefly subscribing to it:

      1. It's convoluted to see deals without subscribing. I imagine there are people out there who would be interested, but don't want to give out personal information.
      2. Who can blame them? Most of the deals sucked in my area. This is one place where targeted advertising would be great--I specifically signed up to receive ads! Instead, I got an ad for pole dancing. As a male, I was not very intrigued.

      • Re:Zynga? (Score:4, Insightful)

        by DrXym ( 126579 ) on Tuesday September 27, 2011 @05:26PM (#37533010)
        The main problem with Groupon is the "deals" suck so badly for businesses that once they've burned through all good will in a region the only way to keep generating revenue is to expand into another. Hence Groupon has hyperinflated itself beyond the major US cities, into smaller cities, into Europe and beyond. It attracts local interest in its service for a while before the offers turn to shit. And when the deals turn to shit people lose interest in the service altogether. It's obviously all going to come crashing down at some point. I'll be surprised if Groupon lasts more than a year in its current form the way it's going.

        • The main problem with Groupon is the "deals" suck so badly for businesses that once they've burned through all good will in a region the only way to keep generating revenue is to expand into another.

          I would actually be embarrassed to use a GroupOn coupon, knowing how much it was shafting the business in the process. They get what -- 25% -- of their normal price, while GroupOn keeps another 25% for themselves in the half-off price? I truly feel sorry for the businesses who have been convinced to go this route.

      • I imagine there are people out there who would be interested, but don't want to give out personal information. [...] This is one place where targeted advertising would be great--I specifically signed up to receive ads! Instead, I got an ad for pole dancing. As a male, I was not very intrigued.

        So you don't tell the system that you're male (personal information) and then you're annoyed because you see ads that don't make sense to you?

        • Re: (Score:2)

          by Cinder6 ( 894572 )

          Actually, I did give them personal information. Signed up and everything. I should have made that more obvious.

  • Too much generalization (Score:5, Insightful)

    by JoshuaZ ( 1134087 ) on Tuesday September 27, 2011 @04:35PM (#37532364) Homepage
    Groupon is not a social media website by most definitions of that term. Zynga is a single one of many companies profiting from Facebook. Pushing back the Facebook IPO is not a reason to think that the bubble is bursting- indeed if they thought that they'd want to go and do the IPO sooner rather than later. The Zynga and Facebook issues are also probably to some extent due to a new player entering the field in terms of Google+. It does seem that the social media sites don't remain on top for very long. Myspace is dying, and who even remembers Friendster? But it does seem that the industry itself is here to stay. We may end up seeing something similar to what happened with search engines- successive stages of different companies until someone got the product well enough to dominate the market (a long with a healthy dose of early mover effect compared to new rivals). Whether that will happen or not is hard to tell. But declaring that there was a bubble in this context when most of the relevant companies aren't even being traded actively is really difficult. Declaring that the bubble has burst makes even less sense.

    • Re: (Score:2)

      by migla ( 1099771 )

      We may end up seeing something similar to what happened with search engines- successive stages of different companies until someone got the product well enough to dominate the market (a long with a healthy dose of early mover effect compared to new rivals).

      I'm hoping we'll make some progress. We should get a "social media" that is made by, for and of the people (to borrow from something that may not actually deserve that description). Powered by something like diaspora* [joindiaspora.com] and the freedombox. [freedomboxfoundation.org]

      ps. Check out the new .sig if you have an opinion on women.

      • Re: (Score:2)

        by migla ( 1099771 )

        Sorry. I feel the need to clarify. The ps. was completely off topic and was not just directed at the parent but at anyone in general.

  • Anti-Social Networking (Score:3, Interesting)

    by Armandoban ( 1210708 ) on Tuesday September 27, 2011 @04:36PM (#37532382)
    Even the most computer illiterate among my friends and family are starting to talk about privacy invasion, enforced sharing, and lack of control over their personal information. Facebook's "ticker" has created a new world of raging confusion. The anti-social networking mentality is hitting the mainstream..

  • Overly dramatic headline (Score:5, Insightful)

    by DragonWriter ( 970822 ) on Tuesday September 27, 2011 @04:37PM (#37532396)

    Better would be "Predicted social media bubble fails to materialize". A bubble is defined by its inflation; a bubble that "pops" before it "inflates" never existed in the first place.

    • Re:Overly dramatic headline (Score:5, Insightful)

      by NeutronCowboy ( 896098 ) on Tuesday September 27, 2011 @04:40PM (#37532444)

      I would argue though that Goldman Sachs creating an investment tool that trades in Facebook pre-IPO shares, and having that investment tool value FB at around $50 billion is a pretty damn strong sign of an actual bubble.

    • Re: (Score:2)

      by dzfoo ( 772245 )

      Aha! But the question is, are bubbles created fully formed or inflated to shape? And if the latter, can they "pop" while in the process of inflating?

      The headline says, "before it fully inflates," implying that a bubble was formed, then while in the process of filling up, it popped before reaching it's full capacity.

      Years of experience blowing soap bubbles confirms that the analogy is apt.

            dZ.

    • Re: (Score:2)

      by mjwx ( 966435 )

      Better would be "Predicted social media bubble fails to materialize". A bubble is defined by its inflation; a bubble that "pops" before it "inflates" never existed in the first place.

      Not really, the bubble is partially inflated with everyone expecting massive sales at the companies IPO. Speculators are gambling on this, however the profit downgrades has shown that the massive initial share prices will not be seen. Zynga, Facebook et al. should have had their IPO two years ago at their height, now days everyone I know who played Farmville and Mafia Wars has gone back to their regular lives.

      If I were Zynga's CEO, I would have had the IPO in 2008, taken a lot of money from stupid people

    • Re: (Score:2)

      by LS ( 57954 )

      As long as you are playing semantics, how can a bubble pop if it wasn't already partially inflated?

  • Zynga's profit is down 95%?? (Score:4, Insightful)

    by NeutronCowboy ( 896098 ) on Tuesday September 27, 2011 @04:37PM (#37532404)

    Damn. I thought that Zynga's bubble was going to pop, but not this soon. There are only so many Farmville type games anyone can play, and I can't be arsed to build my life around clicking some field every 4 hours without getting paid.

    Yes, this is just a year-over-year quarter comparison, and there are a few things that were playing against Zynga in the last few quarters. Not the least of all that a lot of real game companies are getting into the FB game business. Zynga won't be able to just rip-off some game mechanics and then throw some eye candy on top of it. They'll actually have to develop real games.

    Welcome to the real world, Zynga. No one except your founders is going to make bank on your stock.

    • Zynga is killing themselves with all the spam your friends crap. I've played some of the ville games and the thing that really kills them is the spam 100 of your "friends" to get this or that and continue in the game. They'd make a lot more money sticking more with the sandbox than the spam.

    • Re: (Score:2)

      by jfengel ( 409917 )

      Also remember that profits in the tech industry are incredibly variable. You can spend a lot of money on R&D or marketing in one quarter, or have a surge of interest in your new product followed by a rapid dropoff.

      It's hard to evaluate this without looking at their full balance sheet.

    • TFA says Zynga blames it on Facebook demanding 30% of their revenue. That would mean (assuming similar ratio of gross revenue to expenses in the same quarter last year):

      profit2011 = profit2010 / 20
      profit2010 - profit2011 = 0.3
      profit2010 - ( profit2010 / 20 ) = 0.3
      profit2010*(20-1) / 20 = 0.3
      profit2010 = 0.3*20 / 19 = 0.31579 = 31.6%

      So their profit margin in 2010 was 31.6% of gross revenue. Facebook is demanding 30% of their gross revenue this year, which leaves them with a profit margin of just

  • Not surprised in the least. (Score:5, Insightful)

    by ackthpt ( 218170 ) on Tuesday September 27, 2011 @04:40PM (#37532436) Homepage Journal

    I must be jaded.

    I must have been around a bit.

    I must be a thinking human.

    It surprises me in the least.

    The barriers to entry in these fields are so low I can't figure these absurd valuations of social media - people on the internet are not just fickle, they're extreme fickle - since there's nothing really to hold them anywhere, not much of a stake.

    Now eBay, they're still successful no matter how badly they handle their business, because everyone goes there because everyone is there and no other auction sites have really stuck around to compete with them. But social, who's really nailing their cart to any Social Media horse? Google+ pops up and everyone creates an account, just in case everyone else goes there.

    We knew this phenomena back in the days of Fido BBSes (and even before that with message systems on college mainframes in the 1970's.)

    • The barriers to entry in these fields are so low I can't figure these absurd valuations of social media - people on the internet are not just fickle, they're extreme fickle - since there's nothing really to hold them anywhere, not much of a stake.

      You don't understand the true value of the Information that can be harvested out of a site like Facebook who requires (to the extent possible) the use of your proper IRL information. A big pile of that is worth a lot!

  • Zynga Games (Score:5, Funny)

    by randomErr ( 172078 ) <ervin.kosch@nospAM.gmail.com> on Tuesday September 27, 2011 @04:42PM (#37532468) Journal
    Whenever I see a new Zynga games advertised I immediately hear a twisted version of Boomhauer in my head:

    Yeah man, I tell ya what, man, that dang ol’ Zynga, man, you just go in on there and point and click, talk about w-w-dot-w-com, mean you got the chicks on there, man, just go click, click, click, click, click, it’s dang ol' easy, man.

  • I wonder if online pet food stores are coming back.

  • Jokes? (Score:2)

    by vlm ( 69642 )

    Lets get ahead of the curve. Last tech bubble resulted in all kinds of jokes. This tech bubble is going to result in jokes about... Or will it be more complaining, like this bubble will be nothing but whining about how facebook sucks, etc?

  • Money burned elsewhere (Score:4, Interesting)

    by prefec2 ( 875483 ) on Tuesday September 27, 2011 @04:54PM (#37532604)

    The money for the last New Economy bubble was created to counter measure a previous bubble collapse. The fed reduced the interest rates to pump more dollars into the market. That worked perfectly. And the money had to go somewhere. And that somewhere was the New Economy. This time they burned the money in that finance crisis and housing thing. And reduced the interest rates again. However, this time the economy is in such a bad shape due to the financial crisis and the money problems in the Euro-zone and of course the trouble with the US budget keep the banks from "investing" so IPO for the web 2.0 companies is not such a good idea at the moment.

    • Why would the banks worry about US budget?

      • Re: (Score:2)

        by prefec2 ( 875483 )

        They own many government bonds and even more they borrowed money to buy them. The US might not be able to pay back their debt as the current economic crisis slows the US growth down which reduces tax income. The stimulus of the US market with cheap money does no longer work. So the US government tries to do a little Keynes. This increases the debt and will not help to reduce it. The alternative is not to invest in the US economy which will reduce growth figures even more. This will decrease tax income and t

  • Yes! Finally! Hopefully all this social media crap will die off soon. And my later prediction was correct, Groupon was the first to go.

    • Social media won't die until you find some other effective means for creepy guys to stalk scantily clad young women in a semi-anonymous manner. Social media sites have pictures of real college-aged (or younger) girls posting pictures of themselves in bikinis or less without the negative social stigma of being a 'porn' site. Until you find an alternative to that, there will always be some sort of social media demand.

  • Unremarkable:

    1) GroupOn is crap, was going to fail away.

    2) We're at the start of a "double-dip" recession or worse; everyone at the Fed is screaming about "no investment;" interest rates have been lowered etc but experts say this will move only a few investors, in highly secure investments... ie, "what Bubble???", no one's taking high-risk investments.

    I guess now that Taco's gone, article quality is going even *further* downhill.

  • But this time, it was the VC's, private equity, and angels who are holding the declining valuations, not the post-IPO institutional and retail investors.

    About time they stop tossing hot potatoes to us -- they finally got burned!

  • Flailing at the Wind (Score:5, Interesting)

    by Scot Seese ( 137975 ) on Tuesday September 27, 2011 @06:06PM (#37533380)

    Facebook is - or soon will be - flailing at the wind. Fighting an opponent they can't hurt.

    Facebook is now facing a competitor that can afford to earn $ 0 from social media.
    Facebook's survival depends on the popularity and eyeball count of Facebook to sell ads and revenue share (Zynga) agreements against.

    Google, currently earning as much profit per month as Facebook earns per year, does not need Google+ to earn three cents in order to continue flourishing. While they would LIKE Google+ to be a runaway hit, it simply isn't necessary.

    Once Google starts aggressively advertising Google+ on television, stealing 10, 20, maybe 30% of Facebooks' traffic, how will Zuckerburg feel then? Probably like the guys at Netscape after Microsoft purchased Mosaic, rebranded it as Internet Explorer and started giving it away for free.

    Facebook's UI is a mess, it's privacy and security settings are not intuitive and the entire user experience feels stale and worn-out to many people I've talked with. The massive redesign that Facebook is preparing to launch, with Timeline and other UI tweaks.. while satisfying some, will probably feel like "work" to many - something new to learn, for what was supposed to be a simple, fun way to keep in touch with friends.

    If Google has half a brain, they will ascertain the date of Facebooks' relaunch and start a massive national ad buy for Google+ starting two days prior and run a solid week after. Clean, simple, secure microblogging with video and photo photo sharing. They will steal millions of users.

  • Except that their revenues are actually UP. They bought a lot of stuff and hired a lot of people. Profit money taken in, it's money AFTER you paid for everything they are doing. So, as of now, they are quite sustainable [businessinsider.com].

    • Grr, that should read "Profit != money taken in" -Slashdot apparently filters the does-not-equal character.

  • This is all virtual land in cyberspace. Value it as you dare. Both the MySpace debacle and the Dot Com Boom/Bust are still near enough in most people's memories (and investment portfolios) to sing the song, "Won't be fooled again."

  • At least everyone is getting let down before a lot of people lose a lot of money this time around.

    At least maybe Mark Zuckerberg won't be such an arrogant asshat a year from now.

  • This is what they deserve. They took their chances.

  • I find it hard to believe owners believe that they own a rock solid idea or product rather than the latest fad. It must just be greed that keeps them from selling when there company reaches say 50 - 100 mil per person (they certainly don’t need any more).

    As do most here I don't believe these companies are worth much more than 2 to 5 times their yearly profits as with risk added your aren’t likely to see much more back and that curve that looks exponential is just nearing the peak (as the sum of

  •   One of the problems with Facebook is that most of your friends are people you already know and in many cases, people you haven't seen in years. There is a huge void which is trying to meet new people.

      The other problem is the youth. I was a teen in the late '80s and if my parents knew what I was really doing when I was 15-18 they would have thrown me out of the house. Teens today want no part of a social network of parents, aunts, uncles and good grief, Grandparents!?

  • A "friends" network like Facebook benefits from being the largest. It is still a player. Ditto Linkedi-n in the business realm.

    Groupon is an easily copied and implemented concept. Being first or largest doesnt help a whole lot. My local newspaper does a groupon-type promotion daily.

  • At least everyone is getting let down before a lot of people lose a lot of money this time around.

    Tell that to Rupert Murdoch.

  • 90% - really? (Score:4, Informative)

    by LynnwoodRooster ( 966895 ) on Tuesday September 27, 2011 @11:10PM (#37535914) Journal
    From Zynga's most recent SEC filing [sec.gov]:

    .
    For the six months ended June 30, 2010 and 2011, our revenue increased from $231.0 million to $522.0 million, our bookings increased from $373.0 million to $561.3 million, our net income decreased from $20.4 million to $18.1 million and our adjusted EBITDA decreased from $187.3 million to $177.3 million.

    It looks like net income dropped 10% (to 90% of what it was), and EBITDA dropped by about 5%.

    How that translates to a 90% loss in profits I'm not quite sure... Seems like it's a drop TO 90% of what it's profits were - a 10% reduction, not a 90% reduction.

  • Facebook is in decline (Score:3)

    by gatkinso ( 15975 ) on Wednesday September 28, 2011 @06:36AM (#37537994)

    It was fresh at one point, but for me the charm wore off when I realized it was essentially a much better version of software the IC and military uses to create a pattern of life for high value objectives, so I quit last year. Not that I think my profile is gone, mind you.

    For the somnambulant masses, it has simply gotten boring. A chore. How many times at parties do I hear people say "why didn't you reply to this PM", "check Facebook to find such and such directions to a party," "oh god I am so behind on Facebook", ect.

    How one can fall behind with respect to Facebook remains a mystery to me, but apparently it can happen.

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