At the turn of the last century, AOL was the household name when it came to Internet access (not to mention a reliable source for spam CDs in everyone’s snailmail boxes). It was a portal…no, the portal to Internet experience through which people passed in order to access the content there.
In early 2001 AOL took over Time Warner in hopes of owning all of that content people were accessing. The transaction would create the 4th or 5th richest company in the world (with a market cap of $350 billion) through the second-largest such transaction ever. “The deal [will] validate the Internet’s role as the leader in the new world economy, while redefining what the next generation of digital-based leaders will look like,” crooned CNNMoney.
Only the Internet bubble had already popped. Though the NASDAQ stock index had doubled in value between 1999 and 2000, it had already lost 10% of its value three months later. Nearly 400 publicly traded Internet companies represented about 8% of the entire value of US stocks, yet few of them ever had a chance of becoming profitable. They started folding later that year and, once the AOL/Time Warner takeover was completed, the collapses started at the big companies: WorldCom, Global Crossing, JDS Uniphase, Covad and NorthPoint went belly-up, as had and would many more wanna-bes, like Pets.com, Boo.com, and InsertStupidVCBurningIdeaHere.com. The Industry Standard magazine, which tracked and promoted the dot-com phenomenon and sold more advertising pages than any magazine in America in 2000 was bankrupt by August, 2001.
Companies that survived, like Amazon and eBay, did so because they relied on proven and explicable business truisms, and not on the glib alchemy of content and connectivity that made it so easy to believe in the dot-com bubble and its progeny. Time Warner eventually spit out AOL in 2009 for chump change, having proven its old-fashioned dinosaur media properties, though battered, had more real value than the magic imagined by AOL’s financiers.
Fast-forward to Next Week, 2012, and Facebook’s possible IPO. While the numbers aren’t anywhere near as immense — it could raise $10 billion with a valuation of something north of $75 billion — it’s still likely to be far more than what Google got only a handful of years ago ($1.9 billion for a valuation of $23). And there are also storm clouds on the horizon, both for Facebook (a recent survey found that only 1% of the highly-touted “fans” of brands actually do anything) and the latest wave of Internet darlings as a group (Groupon is trading below its IPO price, even though it was similarly touted to “own” the Internet couponing/crowdsourcing phenomenon, and LinkedIn stock has lost half its value in less than a year).
There’s no problem if you believe what’s being said about the Facebook deal’s underwriters. They’re supposedly forsaking their normal fees just to have a hand in the deal, and it’s all but certain that they’ll find ready investors if and when the offering occurs. “The underwriters will have to do very little convincing to investors,” said one business professor, quoted by Reuters.
But it’s quite possible that the social bubble is already leaking the way the dot-com bubble was losing gas when AOL acquired Time Warner.
Both the perpetual motion mechanism of social engagement and the specific claims to hosting it are looking suspect. Visitors aren’t the same as users, who aren’t the same as paying customers (or customers paying attention). The made-up calculators of social value are not looking so smart or solid when contrasted with the more reliable measures of business behavior valued with dollar signs. Big brand names that have wholly embraced social marketing have failed to produce much by it (Kodak was an early adopter and was first to the bankruptcy line, and Pepsi’s dabble in lieu of Super Bowl advertising wasn’t enough to keep it away from this year’s broadcast). There’s no good correlation between business success and doing anything via online social networks, at least not any successes that can’t be explained by other means.
It sure can help, but skipping it — the way social marketing is currently practiced — isn’t sure to hurt. So Facebook is a nice-to-have, until it gets replaced by another service or tool (or culture simply passes by its full-disclosure approach to human relations). It might take many years or just a few, but continued technological evolution, and Facebook’s (or any businesses’) ability to stay ahead of it is certainly up for debate.
Maybe we’ll look back at the IPO as the turning point? By then we’ll be into the next bubble, though. So perhaps the short-term strategy is to buy-in and then get out ASAP? Watch what the underwriters do…