It’s Not The End Of Awesome, Just The End Of Huge Valuations
Derek Thompson thinks things are going to be less awesome, from here on out, because of Facebook’s failed IPO:
Derek Thompson, Why the Social Media Revolution Is About to Get a Little Less Awesome
If we’re graduating from the “making delightful and cheap things” stage of the social media age to the “making money” stage, make no mistake: Things will get less delightful. In order to be profitable, it is highly likely that Twitter can only get more annoying, Pandora can only get more interrupt-y, Tumblr can only get more cluttered, Facebook can only get more devious, and the app baubles on your iPhone can only get more expensive.
The first few years of the social media revolution have been a golden age of tech utilitarianism, where maximizing users’ delight was considered, quite literally, the only currency that mattered. In Part II of the revolution, the desired currency is poised to change from attention to profit. That’s a shame. It doesn’t mean that the programs you love are anywhere close to coming to an end. It just means that things are about to get a little less awesome.
So the argument is that start-up investors — venture capitalists, principally — will start to demand more aggressive returns earlier, and will compel the entrepreneurs in their portfolio companies to build in more advertising, sponsorships, or other revenue sources earlier.
But what about the Darwinian laws involved? If Instagram had launched with ads all over the user experience, or demanded credit cards before the first upload, would people have adopted it? If Twitter was squirting sponsored tweets at us back in 2007, would we have joined?
The answer is ‘No’.
And Thompson’s arguments are based on the assumption that all the players in the market are moving in unison, like a giant stampede of buffalo. While VCs have some characteristics of herd animals, the smartest ones will continue to focus on early user adoption based on exceptional user experience as the primary indication of the future value of an investment.
What is more likely, however, is the ratcheting down of projected returns, and a decrease in the valuation of even the largest social players. That doesn’t mean the companies won’t get funded, it just means they won’t be able to hire and grow so fast. It will slow competition, not end it. And it won’t change the basis of competition, which is user adoption, not happy VCs.
So, in the final analysis, this may all be sour grapes. The VCs wanted billions, so they put in many, many millions, which the entrepreneurs were happy to take at inflated valuations. And now that the IPOs go south, the VCs start wagging their fingers at the entrepreneurs. But the investors are the ones who goofed, big time, not the developers of these tools. And the VCs are supposed to be the grownups.
Fundamentally, the investors shouldn’t have let ‘awesome’ push up the projected returns in their spreadsheets so far: they should have counseled the entrepreneurs to grow slower, and burn less money, but the herd wanted big returns, and fast.
Source: The Atlantic
