Mark My Words

Some of you may have heard about this thing called the credit crunch. It has wreaked havoc across the world, destroying everything in its wake. Now I’m not an economist, so I’m not going to pretend I totally understand what’s going on in the world right. In my life, not much has changed apart from earning less on the savings that I have. Instead, I hope to present to you a reason why I believe we will continue to be in this mess for a good while.

My theory is not new, and stems from the dot-com bubble which burst in the late 1990s and early 2000s where millions (even billions) of pounds were invested in Internet technologies which failed to present any adequate return on investment (ROI) to investors. The World Wide Web (WWW) of that era was mainly 1-dimensional and used primarily for conducting transactions such as searching and shopping. There was none of this talk about Web 2.0. The new era of the WWW is great, don’t get me wrong. We have social media coming out of our ears and everybody is getting along just fine. But how is this hype affecting global markets?

In his seminar paper “Strategy and the Internet” Michael Porter notes:

“Because the Internet tends to weaken industry profitability without providing proprietary operational advantages, it is more important than ever for companies to distinguish themselves through strategy.”

Whilst sound advice, many have failed to take any notice of it. As we continue to see venture capital (VC) funds being pumped into start-ups with no apparent business models the world just isn’t going to learn. Twitter is a prime example. It has a $250m valuation and has currently received up to $55m. This is a success, right? Well, no. Twitter makes no money. It has no value in financial terms. It may be a great tool for people to use to communicate with, but what is it giving back? In financial terms, very little (if anything). And Facebook isn’t much better.

Lots of money is being invested into loss-leaders. Loss-leaders with huge social footprints and presence. Their potential for monetisation is there but is far from being realised. Whilst we’re all worrying that the economy is going down the pan, people in their Ivory Towers are debating whether to give Facebook and Twitter those extra millions of dollars. You know what, even I could spend $55m if I had to promise to give back nothing in return. A somewhat tongue-in-cheek Valleywag article comes to a similar conclusion. I wonder how long this will continue before all of the shops shut and we’re all left to pick up the pieces?