Is Social Media an Empty Tech Revolution?

Look past the debate about whether the social media boom is another tech bubble. (Case for: The top five social media valuations today are equal to the top 20 dot-com companies in the cash out. Case against: Facebook and Groupon make real money -- billions of dollars, in fact -- unlike the dot-coms that burst in the late '90s.)

The broader question is whether, after the smoke clears, this tech movement will leave us a legacy we can build on. The software bubble left us with software. The dot-com bubble left us with companies like Amazon that transformed commerce. If Groupon goes up in smoke, what will it leave behind? Ashlee Vance writes:

In 1986, Microsoft, Oracle (ORCL), and Sun Microsystems went public. Compaq went from launch to the Fortune 500 in four years--the quickest run in history. Each of those companies has waxed and waned, yet all helped build technology that begat other technologies. And now? Groupon, which e-mails coupons to people, may be the fastest-growing company of all time. Its revenue could hit $4 billion this year, up from $750 million last year, and the startup has reached a valuation of $25 billion. Its technological legacy is cute e-mail.

This is damning. And yet. I think social media sites do offer at two foundational ideas. First, the ability of Groupon and Living Social to use Web-technology to maximize inventory clearing -- that is, to offer strategic, real-time deals to boost off-hour commerce -- is a potentially revolutionary idea to increase the efficiency of the economy.

Second, sites like OkCupid, Mint.com and Google search are honing a new business model that with untold potential for our services economy -- the substitution of information for subscriptions. The futurist Paul Saffo has described this transformation as part of an evolution from the age of the producer (the industrial revolution) to the age of the consumer (the last few decades) to a new age of the producer-consumer. This modern producer-consumer consumes sites for free in exchange for producing information about his habits, interests and life, which allows the site to use that data to improve the product or better direct ad revenue.

***

Jeff Hammerbacher, the subject of the BusinessWeek profile excerpted above, left Facebook disillusioned with the direction of Silicon Valley social media warriors ("The best minds of my generation are thinking about how to make people click ads"), to build a new operating system that specializes in examining complex information.

"Where Windows manages the basic functions of a PC and its software, Cloudera's technology helps companies break data into digestible chunks that can be spread across relatively cheap computers," Vance writes. The bottom line question is: What if a search engine could answer the question "what gene do these cancer patients have in common?" as well as Google can answer the question "what are the best articles on gene therapy?"

Hammerbacher might be right that we're wasting our IT-energies on advertisement technology. But I see a silver lining. The fact that sites like Google search are dedicating their resources to turning information into a business model -- and the fact that a new form of data analysis has become central to the business models of some of the largest and most exciting companies in the world -- I think bodes well for companies like Cloudera to stand on the shoulders of giants and take the information revolution further.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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