In my opinion, today, there is no other space that could experience the same fate that is now tearing through the commodity sector—except for social media. This data mining area of everything social, with eyeballs-as-currency, I believe, is about to hit a vein flooding it with so many get-out-of-Dodge sellers, there won’t even be time enough for the last person turning off the lights to take a selfie.
When it happens it will happen quickly and catch us just as, if not more, off-guard than what happened with the comparable dot-com bubble of the late 90’s. Why? Because, just about every person currently involved in anything social (even those that have been through that last bubble popping) have bought into the meme “It’s different this time.” And they're holding on to it hook, line – and sinker.
Over the past few weeks I have been monitoring a few predominantly V.C. centered news outlets along with a few other tech based “inside baseball” formulated venues. These are the sites where one can really get a good grasp on what is actually taking place within a certain “world,” so that the outsider can begin to understand how that world views itself and where it’s going. The more I listened, read, and watched, the more convinced I became it's social media (along with Silicon Valley) itself that’s ripe for a boatload of disruption. i.e., crushing reality, unicorn tears, and discontent.
To my eyes no space resembles the commodity sector more than social media. Commodities such as “also ran” or “me too” are everywhere. Want to take and share a selfie? Or, how about what you had for dinner, or profess to the world you showered, or, just brushed your teeth? Well, there’s an app or social media site for that.
There’s not only “an app or “site” – there’s 12,946,294,946,038 of them and counting to choose from. And: you can try every one if you wish...for free. If you have a life expectancy to match the size of the task.
Want to know a dirty little secret about why they're free, and you don’t even need a specialized app for it? Because: their “target customer group” would drop them in a nanosecond (if not faster) and rush to the next new app in succession if they were ever to charge a fee. Loyalty means – “give it to me for free – or else!” And here’s another little secret, one that’s seen as blasphemy by some and pornographic by others. When money becomes tight, 150 billion (or whatever) bloodshot eyeballs that won’t pay a red cent are worthless.
But wait I can hear through my monitor: What about ads?! You forgot to mention ads; as in ad revenue. Eyeballs for ads!!
Right. You know why I didn’t mention it? Eyeballs for ads are probably the most over-harvested, over-mined commodity social media has dredged through. And you know what? 250 billion eyeballs aren’t worth a nickel more than 150 billion if the resulting sale conversion rate produces a net profit of zero. As a matter of fact – 150 billion eyeballs aren't worth one penny more than only 100 if again the sales conversion rate producing a net profit is again zero. And I believe many in the ad space that pay for these ads are going to re-access and redistribute their precious ad dollars to other areas. Reason?
They have more than enough eyeballs. And they don’t need another 1. That commodity has been mined and stockpiled to near infinity. What ad dollars or media buyers now need are eyeballs connected to wallets that are willing and able to spend. Companies supplying those precious ad dollars are going to demand it. That’s going to be the next test of any platform's mettle in the coming weeks, months, if not years. And it’s not a commodity.
Any company that can show they can deliver 10 paying customers vs 200 trillion eyeballs free will hold the keys to this sector's vault. Regardless of what is said via the financial as well as mainstream media, social’s not getting it done. And as the economy turns stagnant if not lower – getting it done (as in generating net profits via 1+1=2 elementary math) will be as precious as, if not more so than gold.
Recently I gave an intimate talk at a luncheon for an organization built around start-ups and V.C. funding. The organization is a considerable player within this space located in the Midwest. After my talk during the Q&A we delved a little deeper into the whole social media and start-up mindset. The discussion confirmed much of what I have been articulating previously.
For one: As far as metrics (e.g. R.O.I. per ad spending) when utilizing these platforms the results they received (I need to reiterate here, this is their space and marketplace for investment and ideas) were not horrible – they were abysmal. Engagement, and more, was considered pathetic and “a complete waste of time and money.” Again, this was coming from an area one would think would be its greatest cheerleader.
Those cheer-leading days are over, and you could see it in the faces of people who have stopped drinking the KoolAid®. What you could also tell from speaking with them is being away from Silicon Valley has allowed more prescient thinking to come into play. For just like if one finds onesself in an unprofitable hole, the trick isn’t to keep digging, the trick is to stop – and more importantly, move on. Silicon Valley is still digging and still producing a commodity many once-enthusiastic customers no longer need, or want. They’ve got more non-converting eyeballs than they want or need.
Remember: If “eyeballs” are the be-all/end-all saving metric regardless the platform, then why isn’t Yahoo (NASDAQ:YHOO) (which boasts of having over 800 million monthly users) worth so much more? Or better yet, why is it falling once again like a lead balloon? Easy, it was really only a proxy for its stake in, and future sale of Alibaba (NYSE:BABA). Looks like neither of those things are now working out, for all one needs to do is look at a chart (or one’s 401K) to see the current falling price in “eyeballs.”
The social media space is beginning to make one wonder if they’re looking at an iron ore chart, or bulk shipper, rather than “the hottest space it all tech.” i.e., everything social. And it’s just the beginning in my opinion.
Sooner or later Wall Street is going to come knocking for either its promise of profits. Or, its money back. And when that starts (which I believe has already begun) the mad-rush to cash-in what ever value a share might have that day will be assailed with stunning speed. Much like the commodity space where stalwarts of an entire sector can find themselves struggling for solvency in mere months.
This is an inherent part of the commodity business. It’s a race to the bottom. And sooner or later, the bottom drops out and mayhem ensues. Credit lines, share prices, management, equipment, personnel, share holders, everything gets scrutinized and either split up and sold off. Or bankrupted and liquidated all together. And when it happens – it happens at a breathtaking pace. The only piece of un-surety is knowing exactly where that precipice, or demarcation line of no return is.
However, what I’m a little more than convinced of is: we’re far closer too it, if not already past it, than anyone especially those in Silicon Valley itself even realize.