One New York Times writer referred to it as the “Facebook effect.” For a while it seemed as if everyone save for Uncle Fuddy-duddy viewed a series of web-based social startups as akin to manna from heaven, which would reliably rain down money to investors.
Yet there is one social-media development investors are now watching closely: Those software startups that develop social-media solutions for corporations to facilitate social interactions between a company and its employees and customers. It is in this area that social-media startups have a compelling story to tell investors. And this breed of vendor has found a warm reception with venture capitalists.
Even though corporate executives are reconsidering their approach to social media as a communication channel, they are also diving deeper into more robust and complex social-media strategies. The business customer will always have more capacity to spend on new technologies than consumers.
One report indicated those startups targeting the business-enterprise niche received on average a tidy sum of $14 million to move forward with internal social-media platforms for corporations. A recent analysis of 55 social-business startups revealed over two-thirds of those seeking this type of venture capital got the green light.
The glow surrounding social media startups has faded somewhat from those heady days when venture capitalists viewed social-media concepts as nothing less than a potential mountain of gold. This shift to a more realistic view doesn’t mean investors shouldn’t continue to back new social media ventures. What it does mean is that the next hot social-media startup may not resemble those now mature social-media titans. Companies like Facebook, Twitter, and Skype, with their massive accumulations of capital, can afford to make big wagers.
Also a lot of volatility is still a given in social-media stocks – so much so a new term recently entered the nation’s lexicon: “Zucked.” It’s an apt play on Mark Zuckerberg’s name, as it describes a paper-loss crash, in which those gleaming mountains of money suddenly dematerialize. This occurs when the hot air supporting the social-media stock turns into a sudden down draft that instantly wipes out millions in equity.
Social media models designed to ricochet off of existing social media platforms like Zynga Game Network are also clamoring for market position. The company creates and sells virtual goods, and almost one out of three Facebook users have logged into the site.
Even so, the business customer will always pony up cash for new technology. My wager would be on the enterprise side of the equation.