In the years before the financial crisis, we saw asset values rocketing, a host of new buzzwords appearing and a shared conviction that growth would be eternal. So how is that different from social media right now?

Riding the rocket

A bubble can be defined as ‘trade in high volumes at prices that are considerably at variance with intrinsic asset values’.

Intrinsic value is hard to define, since prices are what people are willing to pay. So bubbles are visible in retrospect: if prices suddenly fall, as house and share prices did in 2007–8, that suggests that a bubble has burst. 

We’re certainly seeing rocketing valuations for social media firms, just as shares in building firms and banks soared from 2000 to 2007.

Twitter is valued at $10bn on sales of $100m. Some commentators see Facebook’s astonishing $82.9bn valuation (an eightfold-plus rise from 2009’s $10bn) as a clear sign of a bubble, while Groupon’s rumoured $15–20bn IPO makes Google’s $6bn offer look like peanuts. 

Measure for measure

Is social media overvalued by businesses that use it? Measuring ROI has always been tricky. At my level of the market, many firms engage in social tactics without a guiding strategy. Since they haven’t defined success, no-one can tell whether they’re overpaying for their results, although it seems likely. 

For firms who do measure, metrics that reflect reach and engagement (shares, likes, views, downloads etc) are often subjective.

Firms must decide for themselves how important those outcomes are, how much to pay for them and how to value the brand equity or goodwill they create. Brand equity is potential, or deferred value. It’s tomorrow’s cash flow.

If firms overestimate that cash flow, they may overvalue social media. And the novelty of social as a discipline, and its volatile, fast-moving nature, mean they’re more likely to do so. 

So much for the financial aspect, but what about the psychology and culture of a bubble?

Change in thinking

Leading US economist Robert Shiller is an expert on bubbles who predicted the dotcom crash. He has argued that the cause of the late 1990s tech boom was a ‘change in thinking about ourselves’. Consumers started believing that success did not just mean making money from work, but from investing too. 

In the 2000s, this viewpoint returned with a focus on property. At the peak of the UK buy-to-let boom, you almost felt reckless for not investing in property. 

We’ve seen a similar ‘change in thinking’ about social media. Many firms now accept, largely without question, the idea that they should initiate ‘conversations’ with their customers and be present in the social space. The idea has gone beyond its tipping point. 

Maybe they’re right, but as savvy investors know, the time to sell is when everyone else is buying. Universal, unquestioning endorsement usually means the peak is coming

Convenient jargon

As the US housing market exploded, fuelled by cheap credit, financiers developed new products that sliced, diced and repackaged mortgage debt for resale: MBSs, CDOs, CLOs, CDO-squareds and many more.

The complex, abstract language mirrored the mindset of investors, who often didn’t know (or want to know) what they were really buying. It also created distance between financial instruments and the future cash flows on which they were based, which disguised risk. 

In the housing bubble, the underlying asset was people’s ability to repay their debts. In social media, it’s their loyalty and willingness to buy. And just as in finance, the words people use distance social-media activities and investments from reality ‘on the ground’. 

Terms like ‘engagement’, ‘conversation’, ‘experience’, ‘advocacy’ and so on disconnect marketing from its ultimate goal: persuading people to buy things. And, as in finance, this serves the interests of those who profit when others invest.

Digital agencies and social-media consultants have little incentive to stop using jargon that’s so useful in blurring accountability. 

Act now!

Instead of measured, balanced discussion, what we often see is consultants emphasising the urgent need for companies to get into social media right now, ‘before it’s too late’. This post elegantly embodies the argument, and features a silky-smooth segue into the services the author is promoting.

The shrill advice to ‘get on board’ before something ‘takes off’ is familiar to penny-share traders as a classic pump and dump tactic. Pumpers build a position, generate a buzz and push prices up then dump the shares and move on. And high finance isn’t immune, that’s why investment banks around the world scrambled to invest in subprime. 

In reality, it’s not too late, and it never will be. Second-mover or fast-follower advantage can be well worth having.

Firms joining Twitter now may have fewer followers than early-adopting competitors, but they can draw on far more knowledge and learn from others’ mistakes. And, crucially, they can make an informed decision about whether they should be in the channel at all. 

Polarised debate

Blind faith makes critics more outspoken. This happened with property before the financial crisis, and it’s happening in social: note the similarity in tone between House Price Crash and Ad Contrarian

Both sides are selective with evidence, which erodes credibility. For example, it has passed into social media folklore that ‘Dell makes millions on Twitter’ because their Twitter activity generated $6.5m in revenue worldwide over two years.

But the context for that figure was total sales of $52.9bn in YE2010. Even if we assigned the whole $6.5m to 2010, it would only account for just over 0.01% of sales, or one ten-thousandth. That’s like a freelancer who earns £30k making an extra £3 via Twitter. 

Also, @DellOutlet mainly tweets special offers, which drive sales regardless of channel. Dell gets reputational and customer-care benefits too, but the sales don’t clinch the argument. (Michael Dell didn’t even mention social in his review of 2010).

The sales lift of another cause celèbre, Old Spice, may have been down to offers too. But even if it wasn’t, its runaway viral success had more to do with brilliant creative and stunning execution than social. When we get down to the nitty-gritty of B2B, where creativity is much harder, case studies tend to be heavy on ‘engagement’ and ‘feedback’, light on sales. 

On the other side of the argument, we’ve got critical coverage of Pepsi’s ‘failure’ with social media. While the sales hit is incontrovertible, the reasons for it are far from clear. The strategy, the message or the execution may have been off – which is bad news for Pepsi and its agencies, but not proof of social media’s failure. 

We need balanced debate, but neither side wants it. Social media insiders, like investment banks back in the day, want the dancing to continue as long as possible. And critics gain credibility and exposure from stirring things up, not calming them down. The effect is to entrench opinion on both sides and perpetuate the status quo. 

Pop goes the social

If social media is a bubble, it will be interesting to see what happens when it bursts. For example, we might see:

  • A sudden nosedive in confidence about social media, coupled with plummeting valuations for social-media firms.
  • A sharp fall in the price of social-media services.
  • Business failures among social agencies, and wholesale consolidation (as with estate agents and investment banks in the financial crash). Some failures will be ‘unthinkable’, like that of Lehman Brothers.
  • Companies deserting social media in droves, followed by a slow, tentative process of finding a level of commitment that works and/or feels right.
  • A resurgence of interest in traditional marketing techniques like direct marketing or TV – rather like investors flock to gold and bonds when shares crash.
  • A feeling of embarrassment over past excesses and enthusiasms (yes, I’m looking at you, Second Life) – just as house prices have become a sensitive topic around middle-class dinner tables post-crash.

Of course, there will be those who say it can never happen, particularly with Facebook. But even appealing to entire generations does not guarantee you’ll appeal to those that follow. Before JFK, all men wore hats. 

What do you think? Are we really in a bubble? And if we are, what will happen when it goes pop?


Published 26 April, 2011 by Tom Albrighton

Tom Albrighton is a copywriter and contributor to Econsultancy. He blogs here and tweets here. You can also add Tom to your Google+ circles. 

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Comments (20)

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Kate Baucherel

Thanks for highlighting what people sometimes conveniently forget!
Social Media is simply a popular channel of communication - the thing that a lot of businesses forget is that it's the message not the channel that really matters. Right now we recommend that some of our customers spread their message through social media, but only if that is really where their customers are talking.
If the customers move on, the message has to follow them, wherever they go. We have to advise with thought and integrity, and be ready to react.

about 7 years ago

Chris Lake

Chris Lake, CEO at Empirical Proof

Hey Tom,

Interesting and provocative ideas!

Personally I don't think the bubble analogy fully stands up. Yes, the valuations are ridiculous, and I do think there is a wider bubble of sorts going on, albeit one that's vastly different to that experienced 12 years ago. But as far as social goes, the bubble analogy only works if vast numbers of people actually bail out of social networks. I don't see that happening anytime soon. The names may change (a la Bebo / Friendster) but 'social' is here to stay IMO, and advertisers tend to follow the crowds.

You make a good point about Dell, but there are some significant brand factors at play, and the profits from social-derived sales should more than cover Dell's costs in this area. Dell engages more than 2m fans / followers on Twitter and Facebook alone. Plenty of positives, and who knows how its improved brand positioning affects overall sales?

As for TV advertising, well I don't really think that went away. TV still claims the vast proportion of ad budgets. And yet it cannot be measured with anything like the kind of accuracy available to social media marketers! Indeed, social media platforms can be used to measure TV in a far less expensive and more real-time way than the existing techniques. Thankfully we're moving into an age of attribution, and integrated cross-channel ad campaigns, and not before time.



about 7 years ago


Paul Hutchings

The bubble argument is persuasive but I'm not sure that is what is happening when companies are buying social media strategies/ support/ advice. They do need to get into it and much as I hate the overused hyperbole, the world has changed. Critical for me is your point about measuring the value:

"For firms who do measure, metrics that reflect reach and engagement (shares, likes, views, downloads etc) are often subjective. Firms must decide for themselves how important those outcomes are, how much to pay for them and how to value the brand equity or goodwill they create."

I suspect the actual value delivered today rarely lives up to expectations and pinning it down is hard. But that didn't stop TV coming up with flaky metrics for advertising effectiveness - it works but we still don't really know how well.

about 7 years ago


Tim Schreier

I think it depends on what the "bubble" is in terms of context. If you are an investor, looking for high rewards, perhaps it is a "bubble". If you are a marketer looking for customers and brand loyalty, I do not think there is a bubble.

Social Media and Social Commerce are here to stay. Social Networking has simply multiplied the best form of advertising; word of mouth. But marketers should be warned, for every good experience a consumer has, they are likely to post 10x's more for bad experiences.

It is my belief that for journalism, community, charity and commerce, social media is a very important piece of the puzzle. At what value Wall Street puts on it is the mystery yet to unfold.

Tim Schreier
New York, NY

about 7 years ago


Zoey Chant

Hey Tom

I'm not sure we're looking at a social media bubble about to burst, but we're certainly faced with hyperbole in need of confronting. Which you've done nicely.

However, there is one major piece of the social media puzzle (and imho the one that really matters most), which remains unmentioned. That is the fact that search engines place value on social signals as a ranking factor.

If we're considering the extent to which financial investment in SMO is justified, we can't ignore the fact that a strong social media profile can (increasingly) affect rank within search engines, which in turn is worth considerable $$$.

And by 'strong' social media profile, I mean one which ticks the social signal boxes which can have alogorithmic value according to Google (et al.).

To say social media optimisation is the new linkbuilding is too glib and convenient a statement. But I don't think it would be unreasonable to imagine that, instead of seeing a social media bubble burst, we'll see it move increasingly under the wing of SEO (or vice versa).

Direct revenues from social media are comparatively low right now - as per your Dell example. But moving towards measuring social media quantitatively in line with the performance of a website as a whole, I think it's future remains assured.

If search engines hadn't embraced social signals so enthusiastically, then perhaps we'd be seeing that bubble start to deflate.

about 7 years ago


Nick Stamoulis

I think the bubble will last as long as consumers are willing to keep their social networking profiles going. Certainly, as social media marketing matures some companies will fail while others succeed, just like any other form of marketing. Only time will tell if we are truly in a bubble.

about 7 years ago


Courtney Hunt

In addition to your reasoned analysis and the reasoned responses you've already received, let me add a few more:

1. In spite of the hype, we are far from a "universal, unquestioning endorsement" of social media. The vast majority of people are still not engaged with social media, and many of them are still skeptical.

2. The number of tech companies that are incorporating social media technologies into their products and services is far greater than LI, Twitter, FB, Groupon. They dominate the discussion, but they're hardly representative of the larger population. And as Chris noted, even if these specific companies were to disappear, there'd be others to replace them. Why? Because people find value in the ability to connect with others in cyberspace, both personally and professionally - and they love a good deal.

3. Social media isn't simply a channel, and its application extends well beyond marketing and sales. We need to think of it as a set of technologies that enable us to achieve our goals and objectives, however we define them. The surface factors may change, but the underlying principles are fairly immutable. If we view those technologies as a set of utilities, much like electricity and telephony, it's easy to realize we're not going back.

I like the idea of having rational discussions about this second phase of the Digital Era, addressing both opportunities and challenges. But I'm not sure if asking an inflammatory question like "is there a bubble?" is the way to promote them...

Courtney Hunt
Founder, Social Media in Organizations (SMinOrgs) Community

about 7 years ago


Roger Warner

Hey Tom

I'd agree with you that there's a bubble - but don't see how you can equate pricing markets with Social Media... aside from the inflated valuations of some Social firms.

Social Media isn't a marketplace... It's a communications vehicle. This doesn't have a straight price, but it has changed (and will continue to change) the way lots of the world publishes, talks, shares, etc. This trend will not burst.

How people, brands, etc, use Social Media is faddish (bubble-like)... So, like you say, those later to the game have a lot of acquired learning on their side. It is time for sanity - chasing widgets isn't really going to make an enormous difference to the bottom line. But getting it right is all about technique and planning - not price. And - as @Lakey says - all of traditional media is still faring well... Nothing dies, nothing goes away - it just changes and we need to broaden the marketing plan.

You may disagree? I'm all for sanity...



about 7 years ago


Rick Siegfried

We may be in a bubble. We may not be. All I know is that we get only one shot to make the most out of "today's" market. So, I'm all for riding the bubble like it's going out of style!

about 7 years ago



I don't think all this social media hype will notlast something else will come out soon that will allow people to advertise with millions of people for free. or facebook will die out like myspace or hi 5 lol

about 7 years ago


Libby Malcolm

Hey Tom,
One similarity is the number of pureplays entering the market. Many of my clients in the late 1990s were companies with a business model that relied on customer mass generated by the web. I am seeing a growth in these sorts of businesses lately developing sites and apps using seed capital.

about 7 years ago

Andrew Lloyd Gordon

Andrew Lloyd Gordon, Digital Marketing Expert, Speaker and Trainer at New Terrain Limited

Hello Tom

This is an important post. We need more of this broad, balanced and rational debate about social media.

I agree with others here that the basic tenets of social media - the dilution of traditional communication structures and an opportunity for dialogue - isn't going to disappear. Or, to put it another way, social media cannot be 'un-invented'.

However, what I'm seeing is a building sense of exhaustion and frustration with it.

Some people I work with are beginning to wonder what all the fuss is about.

This is sometimes because they've jumped on the bandwagon without that Strategy you mention. They're also waking up to the fact this stuff takes time, energy and commitment.

One of the dangers I see, is not so much of the social media bubble bursting with a 'pop!' but more of a slow, embarrassing raspberry...

about 7 years ago

Craig Brewster

Craig Brewster, Founder at your mum

I agree that social media is overhyped and oversold.

As Kate Baucherel mentions above, social media is just one of many channels that we use to communicate with our audience. Other channels can be more appropriate, depending on the audience and the message.

As a UX consultant, I look at social media as one possible solution to whatever problem I am trying to solve. When helping my clients I never start with a solution; I always start with their problem. I encourage my clients to think "Do I need to regularly communicate with my audience in their own environment?" rather than "Do I need a Twitter account?"

about 7 years ago

Ashley Friedlein

Ashley Friedlein, Founder, Econsultancy & President, Centaur Marketing at EconsultancyStaff

There is certainly too much hype around anything labelled 'social media'. The phrase itself is a problem as it is so broad - where does 'social media' begin and end? Isn't the entire internet a social medium and always has been? Doesn't social media cover everything from commerce to content to search to mobile to advertising... It is somewhat meaningless as a term I fear and is being used as a 'hot' label to make things appear more valuable.

Is Groupon 'social media'? Not in my mind. Seems more like a good old email list with offers? Certainly not a new idea. Even Twitter isn't used that 'socially' by most people I suspect? Is a blog 'social media' if no-one interacts on it?

about 7 years ago

Joel Chudleigh

Joel Chudleigh, Director at Deep Foot Prints Online Marketing Ltd

Hi Tom
I think that you have stuck your neck out and opened a valuable discussion that will make more people more careful in what they are doing on social media sites. I agree with Chris that Social sites are here to stay - there is too much value in them for users and brands alike.
As a user I find a lot of value in Facebook (for socialising and keeping up with friends) and also with Linked in for business discussions. The thing that I like about both sites is the groups functionality - you can easily find groups of like minded people to share ideas with, and even find groups of people that you disagree with but want to listen to. Wherever there are groups of like minded individuals there will be opportunities for brands. I see more fragmentation of the social space with more and more niche social networks starting up. Currently groups operate within a Linkedin microsite with all of their great functionality but I think that as diversity increases there will be more need for bespoke functionality within different social groups and this will spur people to create more of the niche social sites that meet their particular groups needs.
Now, Twitter is one site that I struggle with to find the value, although this may be due to me not having spent the time persevering with it...but take the recent Japan earthquake as an example; I am living in Tokyo so experienced the quake first hand, the power was out, phones were down but I had my Smartphone and wanted to know what was going on around the country and if the epicentre was anywhere near where my wife and son were (I was out working). So I figured that I should go to Twitter as the news sites hadn't yet caught up with the story - there were 1000's of tweets stating that there had been an earthquake and tsunami along with a shed load of spam but no real news - I wanted some proper detail. In the end I found better and more useful content by just waiting for the news agencies to get something out on Google news search.
Anyway, I have gone way off the point here but hopefully stated my opinion - social is here to stay but will change and evolve and if you are a brand that is in the conversation with your niche then you will be there to follow the trends.

about 7 years ago


Greg Satell

Good post. Thanks for pointing it out to me, Tom.

One point that I think is important to add is that you need to make a distinction between social media and social media marketing.

Many social media marketing advocates have taken a hit, mostly because they were amateurs who didn't have the first clue what they were talking about.

The case with social media is different. Most of the sites will fail, but that's not unusual in tech (you could say the same thing about online bookstores and search, for example).

Ironically, the Facebook is probably not overvalued. I was as surprised as anyone with the $50 billion valuation back in January. However, after running some basic numbers, it looked pretty solid. Since then, the numbers have firmed up stronger than I had assumed.

Here is my reasoning if you want to take a look:

So I do think there was a "bubble" in over-hyped incompetents and stupid ideas. However, social media and will go on and marketers will continue to learn how to use it more effectively.

In fact, I think a good analogy would be the junk bond market in the 80's, which grew rapidly after the so-called bubble burst and the general public stopped paying attention.

- Greg

about 7 years ago


Peter Birganza

Actually, social media is the most important channel to communicate with people in these days. But the problem is that, people are not well aware about it. They don`t know that what are the actual meanings of social media? Social media is not only a channel, it`s a message too that we convey to people with different ways actually.
I agree with the statement that we are under the bubble of social media and without adopting this way of communication, it is really hard to stay for a long in any business field. Article, posted by you is really good and informative in this sense as well.

about 7 years ago

Terry Chisholm

Terry Chisholm, Manager of Digital Services at Pulse Group

When people feel as easy about spending/buying things (their friends like on any of these networks) as people now do on the web with paypal, or songs on iTunes, than these high values might prove true - for that network.

Till then, the values are bubbles of fantasy.

about 7 years ago

Ivor Kellock

Ivor Kellock, Owner at

Social media and web 2.0 I personally liken to the development of the printing press and the ability of the mass sharing of information. A fundamental game changer in the last 550 years.

It is a major step forward in communication channels and how we interact as a species. Soon we will all be able to communicate with whoever we want on a global scale......

So am I supporting the high valuations then? No!

My view above is much longer term that stock market valuations!

The incredible valuations of Facebook and Twitter do look bubble like to me.

Despite the popularity in Facebook you only have to look backwards in time at Microsoft and Nokia (for example) where a few years ago you would not have predicted the problems they are having now because they made poor decisions then or the market just happened to move away from them........

We live in a quick changing ever fragmenting world.

My point - Facebook won't be as dominant as it is today in a few years time....... which means the RoI on inflated valuations will be difficult to achieve.

Sure speculation will occur and profits will be made on short termist stock price growth AKA Skype but at some point reality will bite - unless Facebook will be able to keep pace with the market - multiply revenues 100 fold + and therefore profits and therefore shareholder value.

We are all addicted to new and different - how will Facebook keep us all engaged whilst taking our money? The bigger they get the less nimble they remain.

I think that as the world of tech and comms attracts more and more entrants, markets get more and more fragmented and we all make more personal choices about platforms that we want to use these valuations look even more ridiculous!

These valuations are about #ankers bonuses and short termism only. Hype & people of a certain older generation with the money not understanding what is happening at street level - they have a top down view of the world not a bottom up.

Those that invest at these inflated prices are akin to the North African/Middle Eastern dictators that have been/are being toppled now - except they will not be losing their position of dictatorship or power just the value of their bank the not too distant future........ Ivor

about 7 years ago


Anthony Taylor

Social media is here to stay as an idea, as a "communications vehicle" as Roger Warner stated above me.

However, as some of these comments seem to have missed - economically it is a potential disaster. I am struck at the lack of discussion and articles on the web around the social bubble in economic terms and was pleased to see this one!

I work in digital marketing and as a communications channel social media does have some value to some of our clients, however this does not translate to any economic value for the social media company.

As for advertising in social media - it's a non-starter and that's where the problem lies. We can achieve very high conversion rates from advertising through search engines or SEO but from social media channels conversion levels are totally non-viable through natural campaigns and through advertising.

I would like to know where facebook will ever find $85bn worth of value, current shareholders must be laughing and desperate to get the IPO out there before this bubble inevitably bursts.

I have been told a few times the value lies in the vast collection of user data. I struggle to see that, user data is strictly controlled and without running into serious ethical issues it is almost worthless.

There is a bubble and it is going to burst. What will emerge the other side is exactly the same sort of websites we see now (at 10% of their current valuations), surrounded by the lifeless shells of once wealthy investors.

End rant!

almost 7 years ago

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