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The Next Looming "Commodity" Failure: Social Media

Authored by Mark St.Cyr,

Today, there is no other space that could experience the same fate that is now tearing through the commodity sector in my opinion than social media. This data mining area of everything social and eyeballs-as-currency I believe is about to hit a vein flooding it with so many get-out-of-Dodge sellers – there won’t even be time enough for the last person turning off the lights to take a selfie.

When it happens it will happen quick and catch just as many if not more off guard than the often comparable dot-com bubble of the late 90’s. Why? Because near to a person currently involved in anything social )even those that have been through that last bubble popping) have bought into the meme “It’s different this time” but holding onto it hook, line – and sinker.

Over the past few weeks I have been monitoring a few predominantly V.C. centered news outlets along with a few other tech based “inside baseball” formulated venues. These are the sorts where one can really get a good grasp on what is really taking place within a certain “world.” Along with how that world views itself and where it’s going. The more I listened, read, and watched? The more convinced I became its social media (along with Silicon Valley) itself that’s ripe for a boatload of disruption. i.e., crushing reality, unicorn tears, and discontent.

To my eyes no space resembles the commodity sector than social media. Commodities such as “also ran” or “me too” are everywhere. Want to take and share selfie? Or how about what you had for dinner, or profess to the world you showered or just brushed your teeth? Well, there’s an app or social media site for that.

There’s not only “an app or “site” – there’s 12,946,294,946,038 of them and counting to choose from. And: you can try every one if you wish for free. If – you have a life expectancy to match the task.

Want to know a dirty little secret you don’t need an app to view for why they’re free? Because: their “target customer group” will drop them in a nanosecond (if not faster) and rush to the next in succession if they were ever to charge. Loyalty means – “give it to me for free – or else!” And here’s another little secret, one that’s seen as blasphemy by some and pornographic by others that needs no credit card to view. When money becomes tight -150 billion (or whatever) bloodshot eyeballs that won’t pay a red cent – are worthless.

But wait I can hear through my monitor: What about ads?! You forgot to mention ads; as in ad revenue. Eyeballs for ads!!

Right. You know why I didn’t mention it? Eyeballs for ads are probably the most over-harvested, over-mined commodity social media has dredged through. And you know what? 250 billion eyeballs aren’t worth a nickel more than 150 billion if the resulting conversion rate of a sale that produces a net profit is zero. As a matter of fact – 150 billion aren’t worth one penny than only 100 if again the sales conversion rate producing a net profit is again: Zero. And I believe many in the ad space that pay for these ads are going to re-access and redistribute their precious ad dollars to other areas. Reason?

They have more than enough eyeballs. And they don’t need another 1. That commodity has been mined and stockpiled to near infinity. What ad dollars or media buyers now need are eye balls connected to wallets both willing and able to spend. For companies supplying those precious ad dollars are going to demand it. That’s going to be the next test of any platforms mettle in the coming weeks, months, if not years. And it’s not a commodity.

Any company that can show they can deliver 10 paying customers vs 200 trillion eyeballs free will hold the keys to this sectors vault. Regardless of what is said via the financial media as well as the main stream media; social’s not getting it done. And as the economy turns stagnant if not lower – getting it done (as in generating net profits via 1+1=2 elementary math) will be as precious, if not more so: than gold.

Recently I gave an intimate talk at a luncheon for an organization built around start-ups and V.C. funding. The organization is a considerable player within this space located in the Midwest. After my talk during the Q&A we delved a little deeper into the whole social media and start-up mindset. The discussion confirmed much of what I have been articulating previously.

For one: As far as metrics (e.g. R.O.I. per ad spending) when utilizing these platforms the results they received (I need to reiterate here, this is their space and marketplace for investment and ideas) were not horrible – they were abysmal. Engagement, and more was considered pathetic and “a complete waste of time and money.” Again, this was coming from an area one would think would be its greatest cheerleader.

Those cheer-leading days are over, and you could see it in the faces of people who have stopped drinking the KoolAid®. What you could also tell from speaking with them is being away from Silicon Valley has allowed more prescient thinking to come into play. For just like if one finds themselves in an unprofitable hole, the trick isn’t to keep digging, the trick is to stop – and more importantly; move on. Silicon Valley is still digging and still producing a commodity many once enthusiastic customers no longer needs, or wants. They’ve got more non-converting eyeballs than they want or need.

Remember: If “eyeballs” are the Be-all – End-all saving metric regardless the platform. Then why isn’t Yahoo™ (which boasts of having over 800 million monthly users) worth so much more? Or better yet, why is it falling once again like a lead balloon? Easy, it was really only a proxy for its stake, and future sale of it, in Alibaba™. Looks like neither of those things are now working out, for all one needs to do is look at a chart (or one’s 401K) to see the current falling price in “eyeballs.”

The social media space is beginning to make one wonder if they’re looking at an iron ore chart, or bulk shipper, rather than “the hottest space it all tech.” i.e., everything social. And it’s just the beginning in my opinion.

[2 Year Performance of Iron Ore vs Small Cap Social Media]

Sooner or later Wall Street is going to come knocking for either its promise of profits. Or, its money back. And when that starts (which I believe has already begun) the mad-rush to cash-in what ever value a share might have that day will be assailed with stunning speed. Much like the commodity space where stalwarts of an entire sector can find themselves struggling for solvency in mere months.

This is an inherent part of the commodity business. It’s a race to the bottom. And sooner or later, the bottom drops out and mayhem ensues. Credit lines, share prices, management, equipment, personnel, share holders, everything gets scrutinized and either split up and sold off. Or bankrupted and liquidated all together. And when it happens – it happens at a breathtaking pace. The only piece of un-surety is knowing exactly where that precipice, or demarcation line of no return is.

However, what I’m a little more than convinced of is: we’re far closer too it, if not already past it, than anyone especially those in Silicon Valley itself even realize.