dot-com crash 2.0?

Rufus Jay has written an article in this week’s Marketing Week that has raised some questions as to whether social networks will ever raise any real money.

He points out that although YouTube is huge in popularity and quickly becoming synonymous with user generated films, it’s still not really making much profit and this could soon mean we see a new dot.com crash.

Google, paid a whopping £853m to buy YouTube back in October 2006 but it’s only expecting to make £100m from advertising this year.

Other sites have also reported problems too with News Corp reluctantly reporting that revenue targets will be missed by MySpace.

Rufus ends by saying: “The acquisitions of YouTube, Bebo and MySpace may represent small drops in the ocean for their cash-rich owners, but increasingly there is a sense that such money has been flushed away, and that perhaps Facebook should have sold more of its equity earlier.

“The days of the megabuck valuations for such sites are over – for now, at least.”

I think it’s true that a number of social networks, newspapers and online magazines are finding it increasingly difficult to create new revenue streams from their content.

I also believe prices for anything from petrol, houses, food, cars and yes companies were all higher 6-12 months ago because people could raise funds and everybody was looking to invest. However, I don’t think this money has been flushed away and this is another .com crash. This is simply down to our economic conditions and companies looking to reduce their advertising and marketing spend – in my view wisely!

The original .com crash was caused by a plethora of flawed ideas/business models, non-existent customers and the common belief that if you put a website on the internet you are immediately going to have seven billion customers buying your services.

Surely, today’s investors have learnt from their previous mistakes.

Posted By Chris Norton

Chris is listed in the world's top 30 PR bloggers and a regular conference speaker on crisis management and social media marketing. He is also co-author of Share This Too and lectures on digital communications at Leeds Metropolitan University.

3 Comments

Tim Bailey

Chris, in traditional stock market terms Google did OK, with a price to earnings ratio of about 8 to 9 for YouTube. If a quoted company has earnings that are greater than 10% of it’s stock valuation, they are seen as a good take over target.
I expect Google might be a little more worried about the possibility of an adverse ruling on copyright matters, rather than their ad revenue.

Chris Lake

Think this is an interesting article. Never understood the elevated price tags on the social network sites, because for me at least, I didn’t see where the revenue could be generated to make it a sound investment, other than adverts. I agree with Tim. YouTube infringes so many copyright laws, and in my opinion, police their site so poorly, that the backlash could be really bad and cost a fortune in fines, or even backlogging royalties
However, it is surely down to what company buys it, and what they do with it. Someone will have a genious idea that will slot in perfectly with these sites, then start bleeding us dry of money 🙂 Maybe facebook merging with itunes, and becoming a social music store? youtube merging with lovefilm and becoming a social video store?
I’m no expert on this. Just a thought from a more simplistic mind

Chris Norton

@Tim Bailey – Yeah if I was Google/YouTube I would be very worried about the implications of the legal trial. They will be crossing their fingers along with everything else.
@Chris Lake – thanks for your comments I think you are right. Myspace recently announced it is to drop its walls of secrecy and that will be the first of many. Soon we will start to see social sites sharing information so users don’t get locked into platforms like Facebook. It’s going to be interesting to watch how these competing sites work with each other to maintain their popularity. Their big worry is that we will get bored on move onto the next social site that promises something else. Hope it goes well in Ibiza this weekend!

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