Tweeting Isn't a Bubble, It's a Bandwagon

The case for hopping on.
Reuters

Twitter’s initial public offering last week was everything that Facebook’s botched offering a year and a half ago was not: the stock was reasonably priced; management wooed investors; and the company neither promised the moon nor the stars, and was rewarded with a substantial amount of cash raised, a stock that went up more than 75 percent, and a valuation of $25 billion.

Though shares pulled back sharply — and predictably — the day after its IPO, Twitter has now joined the pantheon of leading social media companies. It has yet to make a profit, but unlike the 1990s Internet comets it is routinely compared to, it is making substantial revenue (on pace for just under $600 million this year). That is substantially less than Facebook was making when it went public ($3.7 billion), but more than LinkedIn was generating when it went public in 2011 (estimated at $220 million).

That said, at its IPO Twitter was valued higher than either Facebook or LinkedIn at the time of their public offerings. In that sense, Twitter’s reception does raise a vital question: are these companies doing more than making their founders and investors rich? Are they doing more than satisfying some nice need of their customers? Are they, in short, changing the world the way they claim? Or is that claim just a useful marketing device that makes otherwise pedestrian businesses appear to be something far grander, convincing investors to pay more than they would for equivalent businesses in more prosaic industries?

I’ve been wondering about this question for several years, and for now, it remains a question. The hype and draw of social media in its many and various forms is undeniable. Whether it is the Twitter IPO, or Yahoo’s $1 billion purchase of Tumblr, or the panoply of new companies that pop up in Silicon Valley and NYC’s Silicon Alley, these companies have buzz and they also garner income. Because so many of them serve as new media companies, occupying the same general space as journalists, they garner attention. Yahoo’s Marissa Mayer gets substantial press, far more than the chief executive officers of many companies many times larger. The same can be said for Twitter and before it Groupon, Zynga, and a host of others whose size was modest compared to many public companies, but whose profile was anything but.

Ask denizens of the Valley what they think, and they’ll say that companies like Twitter command premiums and generate buzz because they are transformative. They are transformative the way that Apple, Google, Microsoft and Oracle were transformative. They change the way consumers and businesses live and function, and they make it possible for people to connect ever more seamlessly to the products, services and people that they wish to and need to. Or so the argument goes.

Many people outside of the Valley view these claims with skepticism, hearing an echo of 1990s tech utopianism. And they are right — to a point. The problem with the tech utopianism of the 1990s wasn’t the utopian part; it was the speculative bubble. In that respect, the problem with tech in the 1990s wasn’t the technology. It was instead a toxic mix of pop culture and Wall Street that produced such overweening, Tulip mania-valuations.

And in fact, the actual innovations of technology over the past twenty years have made businesses more productive and unlocked the potential of individuals. Oracle has more than lived up to the grandiosity of its vision, and has become the digital highway for vast swaths of the world. Google is, of course, Google, and numerous smaller companies known only to the technorati are making possible everything from Big Data to the next wave of smart phones.

Presented by

Zachary Karabell is Head of Global Strategy at Envestnet, a financial services firm, and author of The Leading Indicators: A Short History of the Numbers that Rule Our World. More

At River Twice Research, Karabell analyzes economic and political trends. He is also a senior advisor for Business for Social Responsibility. Previously, he was executive vice president, head of marketing and chief economist at Fred Alger Management, a New York-based investment firm, and president of Fred Alger and Company, as well as portfolio manager of the China-U.S. Growth Fund, which won a five-star designation from Morningstar. He was also executive vice president of Alger's Spectra Funds, which launched the $30 million Spectra Green Fund based on the idea that profit and sustainability are linked. Educated at Columbia, Oxford, and Harvard, where he received his Ph.D., he is the author of several books, including Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends on It (2009), The Last Campaign: How Harry Truman Won the 1948 Election, which won the Chicago Tribune Heartland Award, and Peace Be Upon You: The Story of Muslim, Christian, and Jewish Coexistence (2007), which examined the forgotten legacy of peace among the three faiths. In 2003, the World Economic Forum designated Karabell a "Global Leader for Tomorrow." He sits on the board of the World Policy Institute and the New America Foundation and is a member of the Council on Foreign Relations. He is a regular commentator on national news programs, such as CNBC and CNN, and has written for The Wall Street Journal, Newsweek, Time, The Washington Post, The New Republic, The Los Angeles Times, The New York Times, and Foreign Affairs.

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well. Bestselling author Mark Bittman teaches James Hamblin the recipe that everyone is Googling.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well.

Video

Before Tinder, a Tree

Looking for your soulmate? Write a letter to the "Bridegroom's Oak" in Germany.

Video

The Health Benefits of Going Outside

People spend too much time indoors. One solution: ecotherapy.

Video

Where High Tech Meets the 1950s

Why did Green Bank, West Virginia, ban wireless signals? For science.

Video

Yes, Quidditch Is Real

How J.K. Rowling's magical sport spread from Hogwarts to college campuses

Video

Would You Live in a Treehouse?

A treehouse can be an ideal office space, vacation rental, and way of reconnecting with your youth.

More in Business

From This Author

Just In