In a word, yes.
But this isn't the dot com bust of yesteryear. Instead, the collapse of the social media bubble reflects the business world's broad misunderstanding of what social media even is, and the resulting hype that never had any connection with reality.
To emphasize the difference, while Groupon, Facebook, and Zynga have all seen dramatic losses in stock value, none of these companies is expected to go out of business.
Why the Social Bubble is Different
In the aftermath of the dot com bubble, it felt as though the internet became a ghost town. The problem was that ecommerce site after ecommerce site had the same goal: monopolize a sector of the online market and leverage network effects for increased growth. They all aimed to do this by investing more money than they had and intentionally taking losses. This was a strategy doomed to fail for the vast majority of these companies.
In the end, to the consumer, ecommerce is ecommerce. The retailer didn't matter all that much.
The striking difference in comparison with social networks is almost tangible. We can see it in the fact that Google+ is, almost without question, a better product than Facebook. It's sleeker, more user friendly, and in some ways more innovative. With the Google search engine to promote it, it even has practically ubiquitous brand recognition.
And yet, nobody's there when compared with Facebook's numbers. Why? Well...because nobody's there.
The social bubble is different from the dot com bubble because social networks are almost irreplaceable. Most people won't use a network unless most of their friends are using it. Facebook will not go out of business unless at least half of its users end up switching to another network.
This means that roughly 400 million people will need to willingly use two facebook-style networks at the same time before all the users will switch over to another one. That is a lot of cultural inertia to overcome, and it probably won't happen overnight.
Why it Happened
We could debate endlessly over an enormous number of factors that played a part in why the bubble collapsed, but for me it all comes down to one thing that I've been saying over and over:
Social media is not media.
For roughly a century, media has meant newspapers, magazines, radio stations, television channels, movies, CDs, and eventually static websites. All of these media channels had one thing in common: they went one way. The media company said something, and the consumers listened.
Social media is nothing like this. It is far more like the telephone than the radio. People use it to communicate with friends and family, or to find people with similar interests. It is a communication tool.
And virtually all social networks plan to monetize it in the same way: with ads. Investors heard this and thought: "Facebook is like a television channel with 400 million daily viewers and no DVR to skip through the commercials."
But they were wrong. Facebook is more like a free telephone company that monetizes by playing a commercial before connecting you to the caller. While that's an innovative idea, there's no reason to suspect that it's a better marketing channel than cold calling or a great customer service team.
The crucial thing to understand about social technologies is that they have massive economic impact but they aren't necessarily destined to be massive sources of revenue. Consider, for example, the impact of Wikipedia. Virtually everybody has used it, it has revolutionized the way we find information, and it doesn't earn a cent of profit.
Does Social Media Matter to the Business World?
Absolutely. A business ignoring social media today is like a business ignoring the telephone in the 1940s. Now that it exists, it will not go away, regardless of what might happen to any particular company.
But the prevalence of social media doesn't indicate that you should be buying ads. Just as SEO makes it possible to reach an audience via Google without paying for AdWords, a good social media marketing campaign shouldn't rely on ads, at least not entirely.
Instead, the important thing to realize about social media is the growing importance of relationships. What happens to Facebook's stock has nothing to do with the modern consumer or the fact that today's generation is growing up with social networks as a part of daily life.
While it's entirely possible that Facebook could go out of business one day, the fact that today's consumer can instantly ask all of their friends where to find the best restaurant in town is a change that's here for good. The fact that everybody, even the most introverted among us, now has the capability to complain or praise companies publicly, in the heat of the moment, to all of our friends, is here to stay.
Why do you think the bubble burst? Will this affect your strategy going forward?
Image credit: Martin Fisch