Jinfo BlogSocial media 1: Who knows how to pick winners?

Friday, 15th July 2011 Sign in to MyJinfo or create an account be able to star items Click for printable version Subscribe via RSS to get updates as soon as Blog items are added Tweet about this item on Twitter Share on Facebook Share on LinkedIn

By Tim Buckley Owen

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Amid the firestorm currently engulfing News Corporation, it would be easy to lose sight of another recent setback for the media conglomerate: its sale of the social networking site MySpace for a mere $35 million, having spent a whopping $580 million to buy it in 2005. It may be small beer compared with the trouble the company is now in – but it is a vivid reflection of the continuing difficulty business of every kind is encountering in getting to grips with social media.

Widely reported (try the BBC for example), MySpace seems to be only one symptom of a malaise affecting wide swathes of the investment community where social networking is concerned. Among a crop of apparently mispriced recent initial public offering valuations by investment banks, the Financial Times’s Vince Heaney highlights LinkedIn, noting contrary arguments that it was either underpriced because the value of its shares shot up on the first day of trading, or is actually overpriced longer term because a bubble is developing in social networking stocks.

A survey by United States accounting and consulting organisation BDO-US (reported by the CNET news network) also finds over 60% of capital markets executives at investment banks believe social media companies’ valuations can’t be justified and that a second dot.com bubble is at least likely. But BDO partner Jay Duke isn’t convinced – because today’s internet companies are at least real, with solid business models.

Nevertheless, Facebook’s valuation in advance of a possible IPO has undeniably been ballooning – even though the newsletter Inside Facebook reports that user numbers have actually been dropping in early adopter countries such as the United States, Canada and the United Kingdom. Once penetration reaches around 50% of a country’s population, it seems, usage tails off.

Twitter use, on the other hand, continues to grow dramatically (admittedly from a much lower base), according to the latest findings from the Pew Internet & American Life Project. Use by 25-34 year olds has doubled since late 2010 (from 9% to 19%) and that by 35-44 year olds has grown from 8% to 14%, with particularly heavy use among African Americans and Latinos.

Then you need to add to all this the arrival of Google+ – albeit just as a “project” for the moment. Its basic premise is that current online sharing is “awkward – even broken”, because “the subtlety and substance of real-world interactions are lost in the rigidness of our online tools”. So it could turn out to be a major disruptor.

But all this is simply context. What really matters to business is making viable use of social media – and all the signs are that it’s still thrashing round without much of a clue how. More on this shortly.

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