Blowing bubbles, episode 2

Is social media overvalued?

This commentary became longish and not tightly related to the article, but rather a collection of my own thoughts on the subject.

Not that it would matter to entrepreneurs that it’s a bubble right now, rather the opposite, as the important thing for an entrepreneur is to get his or her ideas realized, and secondarily generate growth and wealth from those ideas, no matter what.

Investors are currently desperate to bet on the next social media winner, and established players have more or less lost creativity and speed and need to gain that back through acquisitions. All established players acquire smaller companies continuously. For them it’s a race for world domination.

Hence, it’s a business model proper for a start-up to focus on funding and getting acquired, rather than the traditional revenue-based model. Actually this is often the only option for companies that have good innovative technology, but no marketing power. The amount of users seems to be the most important value factor.

You definitely have a benefit of being in Palo Alto, due to the culture there, and due to the fact that many start-ups are founded by people that have previously worked at Google, Yahoo!, Facebook etc, and because those same companies might acquire your company a year or so later, for a possibly bizarre amount of money.

What I truly argue against is that this industry is innovative. Definitely not in terms of technology. I haven’t seen anything so far that I didn’t think of several years ago, and even speced out, and most likely many others did, so innovation is actually very low. Also, the technology complexity is very low.

Where I see innovation at all is in the areas of:

  • APIs for third-party apps, so that the cost and proliferation of developing end-user apps etc is the responsibility of companies that you as a service provider don’t have to pay a dime for. Twitter shines in this area.
  • Brain-dead simplicity. All services popping up now are so dead simple I can see the source code needed to achieve the functionality before my eyes.
  • Viral marketing and relying on the social marketing effects (word of mouth).
  • Evolve over time based on user needs, but start simple and fast.

“Foursquare and Instagram (largely) do one thing and do it well, whereas Color might be biting off more than it can chew.”

Even so, also Color is a dead simple service, just rehashing things of old. Even the “know what others have posted at the same place” concept have been done in many different ways and many times before, and again is available as a “napkin design” of mine.

The conslusion I draw from this is…

  • that anything goes, pretty much
  • that simple is better
  • just do it: if you have an idea, just implement it and publish it worldwide
  • release early and simple, but different
  • think design and usability immediately
  • go mobile immediately; it’s not an option
  • approach investors very early (in prototype stage)
  • think of revenue later
  • if the idea seems crazy, it’s probably a good one