A recent issue of Media Life laid out a compelling case making the current enthusiasm for social media sound a lot like the "irrational exuberance" leading up to the dot com bubble crash of 2001.


"The fact is, it’s a good bet these social networking sites will never figure out
a workable business model because there may not be one. On the
internet, it’s accepted faith that if you build traffic, revenue will
follow, typically from advertising.

But it simply may not apply to social networking sites such as MySpace, Twitter and Facebook.

That’s for a reason that makes perfect sense on the face of it. Social networking
sites are about people communicating with one another and sharing
information. It’s not a format that’s suited for ad messages. In that
environment, advertising becomes social interference, in some ways akin
to eavesdropping, and it has the potential to backfire.

Why should we know this already? Because of the telephone.

Telephones have been around for more than 100 years, and yet despite numerous
attempts, Americans have resisted attempts to put advertising on
phones, even when the phone service was offered for free. Note too the
rising public protest over telephone marketing, which eventually led to
the federal do-not-call program several years ago.

One might argue that over time internet users will give in and accept advertising
on their social networking sites. One might also reason that over time
hell will indeed freeze over and Canada will indeed run dry. But it is
the sort of bet anyone in their right mind would place billions on? No.

There are several lessons to be drawn from this.

One is that where big money in involved–call it greed–our inability to remember lessons of the past can be mind-numbing.

Another is that after all these years, we still don’t fully appreciate how
different and unique a medium the internet really is. We assume that
because advertising works in some environments, it works in all. And it

Agree or not, economic bubbles happen. One will happen again.    

New Ecommerce and Paid Content Models
Check out this related session at The Folio: Show, November 1-2 in NYC!

Media companies responding to challenges in advertising are looking harder than ever at ecommerce, both selling products to readers and…