We might as well have called it the Ides of August. In the last month, all of the major publicly traded social media platforms with the exception of LinkedIn have taken a beating in the market. Groupon got it the worst after their controversial CEO Andrew Mason all but admitted in an earnings announcement that the company needed to seek out additional sources of revenue (that being Groupon Goods – which is lower margin and higher risk). Facebook, too, took a whupping. Social games company Zynga got hammered. Rather than wait to see if issues of these flagship social cos would recover, the smart money ran for the hills.
Marc Andreessen’s venture fund A16 dumped its Groupon stake at a fraction of the IPO price (A16 surely did pretty well — but not nearly as well as it would have if the shares had not faceplanted). In what can only be seen as an all-out indictment of old-school social media, billionaire angel Peter Thiel cashed in most of his Facebook shares around the $20 mark, well below the share price at the IPO. Already we are hearing rumors about an employee exodus in the wake of underwater options. To their credit, these companies have suffered as much from the hype-spewing Wall Street machine and fawning media coverage that christened them the second coming.
What’s becoming more clear to me is this. While social media is here to stay, the market shares a lot more with the online advertising segment than, say, the SaaS subscription business. Social media is only as sticky as its user base and only as attractive as it is fresh. I, too, have been lured by the promise of social marketing. And I am sure that there are real benefits to tapping a social graph for sales. But I am becoming more sure that those benefits are incremental and evolutionary, rather than a step change. Furthermore, as both Zynga and Groupon have recently illustrated, social businesses may actually not be all that sticky or even that profitable. In fact, the sweet spot may be in smaller social businesses or social businesses that drive real value to end users — businesses like TaskRabbit, Zipcar, Uber, and AirBnB.
Now, I’ve gotten this far without talking about hyperlocal. A number of studies have shown that small companies can use social media effectively to capture local audiences. No doubt, this is cheaper than advertising. But I am still unconvinced that a strong social media campaign is more important than, say, really high quality food or service. Word-of-mouth, facilitated by social, Yelp, FoodSpotting, and Angie’s List, among others, is the strongest accelerator of local business. In other words, even though this publication is all about hyperlocal media and a lot of that focuses on hyperlocal marketing, hyperlocal remains an intensely physical, tactile and verbal affair.
So if it comes to hiring an extra set of counter hands or a social media consultant, I’d probably pick the counter hands (Apple takes that approach with their stores). It’s easy to get caught in all the social hype. The last month’s events were an appropriate reminder that we all live in the real world.
Alex Salkever is an executive at a cloud computing company and a former technology editor of BusinessWeek.com. The views expressed in his column are his own and not those of his employer. His Personal Fight column appears every Wednesday on Street Fight.