Will Froth Survive The Fray?
There is an economic law that states “no matter how hot an industry may be at a given moment, only a handful of players from that industry survives over the long term.” Why? They were not prepared, like Amazon, Cisco, Oracle and very few others were, to stand the test of time.
Stock watchers say that the rise of these social media companies do not constitute a bubble, but “froth”. They are generating revenue and have a higher chance of continuance after the initial "honeymoon" phase. Groupon has announced its intentions of going public, so has Zynga and HomeAway. But right now an IPO really is not required to gain investment funds. In an article I wrote about the IPO plans of Zynga, Zynga Shoots for IPO, the availability of investment money for social media network is plentiful. The caliber of their business plans and internet advertising revenue dollars make them attractive to investors.
LinkedIn created roughly $250 million in 2010 from three revenue sources: subscriptions to premium user accounts; employer job postings; and ads targeting its user base. After closing the books on 2010, LinkedIn reported $3.6 million in actual earnings, down from the previous year. That is not bad for a start-up, but shouldn’t a company that is supposed to be worth $8 billion be earning a bit more?
Other social network companies are doing better because they appeal to a wider audience. Facebook and Twitter have mass social appeal. They can add more widely used products, including business applications that would make them viable against LinkedIn. Advertising dollars are going to seek placement with networks maintaining the largest audience appeal, or the "biggest bang for the buck."
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