Going For Broke With Social Media

Michael Hedges April 12, 2012 Follow on Twitter

The business side of social media is exciting for some, frustrating for others. It’s a card game, really. Players enjoy the thrills, even the spills. But it’s the house – bankers and VCs – who always wins.

Facebook’s purchase of Instagram for US$1 billion in cash and stock caused a fair degree of excitement in the techie scene, not all positive, and the world of high finance. Instagram makes a mobile application for sharing photos, all time-stamped and GPS coded with the added feature of color filters. It’s quite clever, though not overly original, and has attracted 30 million users.

Comparisons with Google’s US$1.65 billion all stock acquisition of YouTube in 2006 abound. Before that there was eBay’s US$1.5 billion deal in 2002 for PayPal. Both have paid-off handsomely. Then, too, Yahoo bought Flickr and News Corp bought MySpace. Need we mention the Time-Warner AOL merger?

The acquisition, techies seem to agree, shows just how far the giants of Web media are willing to go to capture mobile device users coveted by the advertising people. Instagram’s technology offers an easy way to upload photos on mobile devices in the social media style, more elegant than Facebook’s photo application. Facebook’s Mark Zuckerberg is buying a hot new start-up before it siphons off Facebook users and, more importantly, before somebody else snaps it up, say the techies.

Young Mr. Zuckerberg is likely paying great attention to Facebook’s top customers: bankers and venture capital firms. Hubris counts, particularly with the Facebook initial public offering (IPO) coming soon. To be a player you’ve got to act like a player.

Days, literally, before the deal with Facebook was announced four Silicon Valley venture funds placed US$50 in Instagram, valuing the company for the moment at US$500 million. See the smiley faces. Those VCs doubled their money in four days.

Instagram may well be an idea whose time has come but its life has been totally dependent on venture capital. A year and a half after angel funding its been without revenue. It has but 14 employees, which also delights the bankers. Mr. Zuckerberg and Instagram CEO Kevin Systrom said the company will continue to operate independently. Mr. Systrom’s net worth instantly rose to US$400 million.

Mr. Zuckerberg and the Facebook crew are certainly looking forward to the IPO, perhaps within a month, which will value the company somewhere between US$80 billion and US$100 billion. The company currently sits on about US$3 billion in cash on 2011 revenues of US$3.7 billion. The company reported 845 million users worldwide. The IPO will benefit from the social media premium.

And therein lies the challenge, looming privacy issues notwithstanding. Social media of the Facebook, LinkedIn and Twitter variety is widely used by marketers of all kinds – media included – to “connect” with customers. The hope, as with all marketing, is that cash follows connection. The social media scene will inevitably fragment further with big players – Google+ - attracting attention and newer specialized portals – like Pinterest – attracting investors. Instagram is, if anything, yet another of the endless examples of new social media start-ups, growing fast, baiting the biggest players. Facebook – Google and Apple, too – will need billions to stay in the game.

See also in ftm Knowledge

Digital Transitions

Media's transition from analogue to digital has opened opportunities and unleashed challenges beyond the imagination. Media is connected and mobile yet fettered by old rules and new economics. Broadcasters and publishers borrow from the past while inventing whole new services. This ftm Knowledge file explores the changes. 75 pages PDF (March 2012)

Order here

Social Media Matures (...maybe...)

Hundreds of millions use social media. It has spawned revolutions, excited investors and confounded traditional media. With all that attention a business model remains unclear or it's simply so different many can't see it. What is clear is that there's no turning back. 42 pages, PDF (June 2011)

Order here

Media in Spain - Diverse and Challenged – new

Media in Spain is steeped in tradition. yet challenged by diversity. Publishers hold great influence, broadcasters competing. New media has been slow to rise and business models for all are under stress. Rich in language and culture, Spain's media is reaching into the future and finding more than expected. 123 pages, PDF. January 2018

Order here

The Campaign Is On - Elections and Media

Elections campaigns are big media events. Candidates and issues are presented, analyzed and criticized in broadcast and print. Media is now more of a participant in elections than ever. This ftm Knowledge file reports on news coverage, advertising, endorsements and their effect on democracy at work. 84 pages. PDF (September 2017)

Order here

Fake News, Hate Speech and Propaganda

The institutional threat of fake news, hate speech and propaganda is testing the mettle of those who toil in news media. Those three related evils are not new, by any means, but taken together have put the truth and those reporting it on the back foot. Words matter. This ftm Knowledge file explores that light. 48 pages, PDF (March 2017)

Order here

More ftm Knowledge files here

Become an ftm Individual or Corporate Member to order Knowledge Files at no charge. JOIN HERE!