Pop 2.0: Is Social Media Creating the Next Dot-Com Bubble?

By Jeff Wilson, APR (@wilson0507)

Last year, I celebrated my 10^th anniversary with my agency, CRT/tanaka. I was hired as a member of our then-Tech Practice, right at the height of the dot-com bubble. It was a heady time for PR. In many ways, we were meandering through an unchartered territory – much like the Old West – where the normal rules of engagement, business practices and marketing didn’t necessarily apply.

It was during that period that I was introduced to vaporware – a word that I grew to despise, because for me, vaporware was synonymous with “nothing.” In the late 1990s and early 2000s, many tech companies spent far more time, money and energy promoting and selling products than actually creating them.

Companies were forming and issuing IPOs at lightning speed on little more than a wing and a prayer, certainly not based on solid business plans.  And like a lot of PR firms, we went along for the ride. Fortunately, our agency has always been diversified, so we didn’t lose our collective shirts the way many tech-focused PR firms did when so many dot-com clients went belly up.

When the tech bubble burst, it burst hard, leaving a long line of casualties in its wake.

Fast forward a decade. Today’s dot-com bubble is being fueled, in large part, by the social media giants. Take Facebook. It’s been widely reported this week that the company has been valued at $50 billion, thanks to recent influxes of cash ($500 million to be exact) from Goldman Sachs and Russian investor Digital Sky Technologies.

Almost as astonishing is the recent news that Groupon, a two-year old “social coupon” site, recently rejected a $6 billion takeover bid from Google. Twitter also raised $200 million from investors, giving the company a valuation of nearly $4 billion.

Just yesterday, it was reported that LinkedIn could make an initial stock offering in the first three months of the year. The size of the offering is not known yet, but it is expected to be small relative to the company’s value. LinkedIn’s implied value on the private trading marketplace SharesPost is $2.2 billion.

With so much money flowing to Facebook, Groupon, Twitter, LinkedIn and other social media companies, are we headed for another dot-com bust?

Perhaps.

“If history is any indication, it seems most of the elements that shaped the 2000 dot-com bubble are present and accounted for in the current environment, including but not limited to, rapidly increasing valuation, market over-confidence and speculation, and excess liquidity,” writes Dian L. Chu of Daily Markets.

But there are some marked differences between 2000 and 2011. This year’s tech bubble is different because – for right now at least – all the major players involved are private and don’t seem to be in any hurry to go public with the exception of LinkedIn.

GigaON’s Matthew Ingram writes, “There have been no moon-shot public IPOs that flame out within days or weeks, no Pets.com or similar issues to raise warning flags.”

Ingram continues that that the only ones who would arguably suffer from a tech-bubble popping are the so-called “sophisticated investors” who take part in secondary-market trades – the kind who will be invited to join the special vehicle that Goldman Sachs is setting up to invest in Facebook.

So what does this all mean? And what will happen next? Your guess is as good as mine. I guess we all have to sit back and hang on for the ride.

In the immortal words of Yogi Berra, “This is déjà vu all over again.”

About Jeff Wilson:

Jeff Wilson, APR is associate vice president and director of business development for CRT/tanaka. He develops and guides the implementation of the agency’s strategic communications plan, which includes media relations, social media, sponsorship, website copywriting, advertising and collateral material development. He also provides day-to-day management of the agency’s new business response functions. Jeff has earned some of the PR industry’s most prestigious awards, including PRSA Silver and Bronze Anvils, a PRSA Health Academy Innovation Award and an IABC Gold Quill. He was named one of PRWeek’s “2008 Top 40 Under 40” as well as one of Richmond’s “2007 Top 40 Under 40” by Style Weekly. He also is immediate past president of PRSA Richmond.