Social Media Bubble Pops Before It Fully Inflates

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.

Too much generalization

[JoshuaZ]

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.

Overly dramatic headline

[DragonWriter]

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.

Zynga's profit is down 95%??

[NeutronCowboy]

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.

Not surprised in the least.

[ackthpt]

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.)

Re:Overly dramatic headline

[NeutronCowboy]

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:given the state of the economy,

[Toonol]

I'd blame it entirely on the bubble, and irrational valuation. It's not the recession's fault that Groupon's value to decreased from a trillion+ dollars... it was never worth that to begin with, and wouldn't have been even in a healthy economy. Nothing real about Groupon or Zynga has changed that caused their value to decrease 90%; those sorts of swings are entirely driven by the worst type of speculation.

Re:Zynga?

[DrXym]

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.