The headline in today’s New York Times is to the point and dripping with déjà vu—“Twitter’s Market Valuation Suggests Wall St. Sees Huge Growth Potential.“ For those who’ve been around a while or who just remember the Facebook implosion there’s a sense of here we go again in the news. You will recall that Facebook had a staggering IPO that raised billions and gave the company billions more in valuation but then the stock promptly tanked unable to generate revenues and profits commensurate with the valuation.
I am not so sanguine about Twitter’s chances. Could we be heading for a repeat with Twitter or possibly something worse? I am not a financial guy and I don’t dispense financial advice so don’t sue me, but the stock looks like a kite on a windy day. It will come back to earth when the wind eases or your mother calls you home for dinner.
Beyond Twitter there’s a bigger thing happening. Google and all of the job sites and Craig’s List-like sites erupted on the scene during the first Internet Era and gobbled up the job listings and display ads that had been the life blood of the print industry for many years. The result has been a nuclear winter in print and journalism to the point that we are seeing magazines and newspapers shutting down or going electronic to save costs and stay afloat.
If you go further back, TV’s emergence in the 1950’s reduced radio’s impact for similar reasons. The entertainment experience was better or at least different and with the audience went ad revenue so that some of the biggest stars of radio had to transition to TV with their shows intact. Early quiz shows and even Groucho were things you could close your eyes to and not miss anything. Before TV, radio was the mass medium everybody talked about around the water cooler and though the era was also one of the movie industry’s golden ages, movies didn’t sell ads so the movies are a different discussion.
What all of this shows is the transition of media going hand in hand with the migration of ad revenue. Today we’re witnessing a great migration and transition from broadcast media to social media but I wonder how long it will last. Print dominated for centuries, Radio, barely fifty years before collapsing into a semi-homogenized stew of music.
TV has had about a fifty-year run too and it is collapsing into reality-and-sitcom-mediocrity or fleeing into the margins of low budget high concept cable. TV’s collapse is partly its own making as a shrinking revenue pie is being shared by hundreds of cable channels where there had once been only three networks. TV was surprising in another way because the technology-cost of production curve has favored lower cost technologies that reached the same or greater sized audiences.
Bucking the trend TV shows are expensive to make, hence the latter day reliance on “reality” themes that employ average people, little script writing or directing, and much more editing and post-production, which is computer-cheap to do these days. TV was saved from the tyranny of the technology-cost of production curve by the cost per impression curve which was an artifact of a population boom.
But the technology-cost of production curve came roaring back with social media and the advertising it hopes to generate and in some cases already is generating. This explains the popularity of Google, and now Facebook and Twitter advertising models. Social beats everything on the cost per impression curve because the technology is ubiquitous and nearly free and the content is free and often compelling. Everyman is a producer and consumer and the advertisers need only stand back and regard the analytics.
However the thing nobody talks about which therefore worries me is audience or market saturation. We already routinely filter out TV ads in numerous ways, so how long before we do the same with content linked ads? Can’t be done? Ha! Get creative. Or consider this: the Internet stream is still free and analytics are getting better and better so how long before conventional advertising, regardless of form, is completely bypassed by vendors?
A vendor buys an ad because it needs to reach an audience that it can’t reach in any other way or as inexpensively. But in a big data utopia it’s possible to know enough about the entire market to simply segment it and take a direct approach. That’s why I am not so sanguine about the Twitter IPO. Sure, there’s time for the social vendors to make some big bucks but in the longer term I think I can already see their demise. It was written in print, and broadcast on radio, and then TV and Cable.
Social networks won’t go away just as print, radio, and TV have not, but it’s a matter of time before some enterprising people figure out how to do social marketing or something like it better, faster, and cheaper. Then the cycle will start anew.
(Cross-posted @ Beagle Research, LLC)