Market Hype is Not a Business model

Social media company IPOs
Are social media IPOs on the verge of creating one giant stock market bubble?

Do stock markets really care if the big play today is LinkedIn or linked sausage? I doubt it, and so should you.

Without a doubt, you probably heard much of the noise about social media companies that are going or about to go public. LinkedIn was the most recent to join the IPO game and was valued at about $8 billion when the dust had settled. This, and the expected IPO of Facebook, and possibly Twitter soon, has created two schools of thought.

The first, we’ll call the “pro” school in that they see these eye-popping valuations as validation of their overwhelming belief in the power of social media.

The second we’ll call the “con” school because they see the same eye-popping valuations as proof that these social media giants are becoming one giant stock market bubble that’s about to burst.

Meanwhile, it seems that the vast majority of us just go on about our business doing the same thing we’ve done for years, shifting a bit this way or that to take into account recent trends.

For instance, I found a study by ExactTarget that found that 56 per cent of U.S. Internet users interact with brands only via marketing emails, compared to 1.3 per cent who interact only via Twitter and 0.7 per cent by Facebook.

Another study by StrongMail found that business leaders still choose email marketing as the top areas of investment growth – at 65 per cent – in 2011.

So, clearly the business reality is different from the market’s sudden discovery of social media as the stock play du jour.

Interest from the stock market isn’t proof of anything except that a lot of stock players have convinced themselves that something is going to make them some money. They don’t care if it’s pork bellies or social media plays. Many probably can’t tell the difference.

I guess the lesson here is: don’t be caught up in the self-delusion that sudden strong showings on the market are “proof” of social media’s innate superiority over everything that has come before it. 

It’s useful, it’s fun at times, it’s aggravating as hell at other times. But it’s not the entire world.

And, particularly, it’s not the only business model for anyone trying to start up a business.