Twitter's Valuation

Twitter—like all of the social media—is totally dependent on advertising revenues from a purely commercial point of view. Like virtually all other so-called tech companies, it is losing money even as it is preparing to go public with an initial public offering (IPO).

The company values itself at $11.1 billion, which seems from out here, viewed through innocent eyes, as rather a huge number considering that it had revenues of $422.2 million as of September of this year, alongside losses of $133.9. Let’s annualize those figures. Extended to 12 months, revenues will be $562.9 in 2013. That would be equivalent to 1.5 percent of total Internet advertising expenditures of $36.6 billion last year. Twitter’s losses for 2013 project to $178.5 million, meaning that its revenues don’t even cover costs yet—never mind profits.

More to the point, advertising, considered as a function of the total economy, is actually much ado about nothing, as I illustrate in the last post. Total ad revenues, all media, stood at $141.7 billion in 2008—and had dropped to $135.9 billion in 2012. Doesn’t look like a growth industry at present.

The message, of course, is that the Tech Bubble continues still. Come to think of it, “tech” seems to produce them. There was the Railway Mania in Britain in the 1840s—an illuminating bit of history worth revisiting as we see the “social media” and “mobility” soaring. There are such a thing as real utility, real industry, and real technology. But when irrational expectations produce investment hysteria, even real estate can have an unreal bubble—based on “innovation” in financing instruments—another “technology.”

Expanding Canvas, Shrinking Paint

The WSJ yesterday carried a story titled “Social-Media Stock Frenzy Fizzles.” Whatever the content here, I admire that headline. Catchy. Now all this, I think, began when General Motors called its advertising money back from Facebook—in advance, one speculates, of pouring out vast masses of it on NBC’s coverage of the Olympics. Tell you the truth, I’m falling in love with Chevrolet all over again. The Olympic spirit? Oh, it’s Okay. The Chevrolet spirit? Now that’s the shining red pickup I want to drive to heaven.

I got to thinking yesterday, what with that frenzy fizzling. The abstract thought was: If supply expands fueled by frenzy—but demand shrinks because the customer isn’t shopping anyway, no matter what you say, no matter how low interest rates are, no matter how radiant that Shining City in the Cyber Sky, why then there is a mismatch. And even those people dancing the St. Vitus dance will eventually notice. The visual image that came unbidden into my mind is the situation of a painter who discovers that his canvas is expanding as he tries to cover its surface, and the faster he paints, the more his paint-supply diminishes.

We’ve all noticed it, of course. With-it broadcasters have developed a new sign-off line. “See us online anytime. And follow us on Facebook and on Twitter.” Why is that list so short? Wikipedia shows a list of 198 social-media (link)—from “43 Things” to “Zoopa”—and it doesn’t even include Zynga, a “major player” in services and games.

Painting the sky Chevrolet red? GM has no problem doing that—on NBC. Watching sports big time every four years? Yes. Discovering what itsibitsiThunder has to say on Twitter today? That isn’t quite so big a magnet.

Social Networks

What do Lady Gaga (10,999,135), Justin Bieber (10,436,368), Barack Obama (8,687,105), Britney Spears (8,234,189), and Kim Kardashian (7,915,103) have in common? Big numbers, for one thing. The numbers I reproduce are the followers they have on Twitter according to twittercounter.com (here). They are, in the order shown, the five most popular tweeters in the world.

Barack Obama stands out in two ways. He is not an entertainer, and he is the only person in the list who is over 31 years of age. For those fading few like me who did not recognize but perhaps two names on the list, Lady Gaga is Stefani Germanatta, a pop singer, aged 25; Justin Bieber is a 17-year-old Canadian singer; Britney Spear, 30, is a recording artist and entertainer, and Kim Kardashian, 31, is described by Wikipedia as a “personality” and a “socialite.”

The times are changing. What we are pleased to call “communications” is morphing into something very strange, never before seen—but, I hasten to add, so were newspapers when they first appeared in the wake of mechanized printing in the seventeenth century. Indeed, the social networks, which are now coming to dominance, are the consequence of electronic communications media. Growth rates are astonishing. Here is a graphic, built from data on this Facebook site, of three of them:

The big name (for now) is Facebook. The hot new property is Twitter. It more than doubled between last year and this. Twitter had 100 members (that’s one hundred, not a typo) in March 2006. LinkedIn, a business net-working site, has recently gone public and is now, suddenly, cluttering up my e-mail inbox.

It’s well to remember that “networking” actually pre-dates the Internet. The concept surfaced in the 1960s and was well established as a concept, indeed even as a quasi-institutional phenomenon, by the 1970s—long before the Internet was commercialized in 1995. You got ahead, it was said, by cultivating a network of well-placed acquaintances—courting them, as it were, consciously, with your own career in mind. I clearly remember once attending a seminar during the 1973-1975 recession; I was looking for consulting clients at the time, a tough time economically; the seminar much disappointed me. It had been too cleverly named. Everybody at the meeting was also looking for clients too— and not a client in sight! LinkedIn, not surprisingly, was the first of these social networks, established in December of 2002. Facebook began in February 2004, and Twitter appeared officially in July of 2006.

The growth in networks is matched by explosive growth in mobile devices. In the third quarter of 2010 alone, 417 million mobile phones were sold worldwide. And in that same time period, another 80.5 million smartphones were purchased. I have this from Marketsize entries reachable here. Instant availability of linkage to a global com-system, with or without wire, is matched by services that link people to each other—and to the personalities they wish to know all about, up to the minute, as it were.

Over against this we have a decline in the by now “traditional” newspaper establishment. In 2010 the top 100 newspapers in the United States had a daily circulation of a mere 21.9 million. Per Reuters, 379 papers had a daily circulation of 30.4 million in 2009, having declined 4.6 percent from 2008. As circulation drops and newspapers first thin out and then disappear, our carbon footprint is also presumably shrinking. Or so it would seem on the surface. The truth is that we can’t know for sure. Is the energy we save by producing less newsprint now consumed in making millions of electronic devices so that our population can keep in touch with events, like Now, like in Real Time, while On the Go?