The Selfish Social Media Bubble

Unlike the other Internet tech bubble before it, this social media variant, which the Facebook IPO will only further prove exists, has kept its money pretty contained.

This article is from the archive of our partner .

Unlike the Internet tech bubble before it, the irrational exuberance of social media, which may just reach its climax with the Facebook IPO, has kept its money pretty contained. When the dot-coms had their moment, we saw that money go everywhere. From hiring to lavish ad spending to just generally lavish lifestyles, the dot com bubble spilled beyond the techie world. This time around, however, our social media bubble has kept its money close. For right now, that seems pretty selfish. But when it all goes pop, it might not hurt so much.

Early on in the Obama Administration, when the collapse of the real estate bubble was still very recent memory, the White House invited a passel of web entrepreneurs to talk about their ideas for kickstarting a recovery. The group included people who have been incredibly successful over the past three years -- folks like Chris Sacca, who invested in companies like Instagram and Posterous, and Evan Williams, a founder of Twitter -- inflating the social media bubble. It's easy to understand why. The dot-com boom of the late 90s was a job-creating machine. At its height, the dot-com bubble created 650,000 jobs in 1999 with the entire industry supporting 2.476 million workers, more than the insurance, communications and public utilities industries at the time, according to a 2000 CNNfn article by David Kleinbard. To name just one example, Excite@Home, which is a no-name now, had 3,000 employees in 1999, according to a former employee.

But while the Instagrams and Twitters of the social media boom have had a great last three years, it hasn't translated into big gains for the rest of the economy. Facebook, the biggest of the social media companies, had a mere 2,000 employees as of February 2011. And most other social networks have much smaller staffs. Instagram, which Facebook bought for $1 billion, had 13 employeesPinterest has 23 people working for it; Twitter, another one of the biggest players, employs about 400. The biggest impact that social media may have had is building an app economy. A recent University of Maryland study found that Facebook alone has created 182,000 and 235,000 jobs in the app economy with a total economic value of between $12 billion and $16 billion. But, those numbers are suspect, as GigaOm's Mathew Ingram points out. "The problem with such reports is that they pile so many estimates on top of other estimates that it’s difficult to determine when they have lost touch with reality," writes Ingram. Zynga, the gamemaker that grew out of Facebook apps, with a market cap just under $6 billion, is probably the biggest in the category. It employs about 2,900 people. Rovio, the Finnish maker of Angry Birds, finished 2011 with about 224 employees.

Part of this scaled back hiring emerges from the way social networking growth works. These tech companies don't have to hire as much, as The New York Times 's Charles Duhigg and Keith Bradsher explained, comparing Apple's scaled up iPhone production to Facebook's business model. "If you scale up from selling one million phones to 30 million phones, you don’t really need more programmers," Jean-Louis Gassée, who oversaw product development and marketing for Apple until he left in 1990 told Duhigg and Bradsher. "All these new companies — Facebook, Google, Twitter — benefit from this. They grow, but they don’t really need to hire much," he continued.

But, this goes beyond practicality, the social media bubble exists in a culture of cutting back. These companies have come of age during a period of general economic instability. It's not en vogue to go on spending sprees. Facebook's soon to be billionaire founder still dresses in a sweatshirt, lives in a relatively modest Palo Alto house and drives an Acura. That money does not trickle back into the economy, either, by the way. This mentality extends beyond his personal lifestyle. Unlike the dot-com companies, which notoriously spent a ton of money on 30 second super bowl spots, Facebook has not purchased a single TV ad. And even when the Facebook millionaires leave, they spend their money on other social media projects, only further perpetuating the bubble, infalting it with social media-made dollars.

But even if social media companies have largely kept their gains to themselves on the way up, there is a upside to this selfish bubble: when the pop comes, it won't feel like an apocalypse unless you're working in the social media world. When those bigger tech corporations fell, everyone felt it. Layoff news came every day, whole neighborhoods went vacant, related industries -- like media companies -- felt the pain when the dot-com dollars stopped. To give an idea of how far reaching into other parts of the economy those layoffs went, here's that former Excite@Home worker, Antone Johnson describing Silicon Valley's 2000 implosion.

Progressively larger dot-coms went under, each one casting a bigger shadow on markets for labor, Commercial Real Estate, Network Equipment, Enterprise Software, Advertising and Advertisements, and all kinds of professional services. Equipment makers, infrastructure providers and landlords soon started getting hammered as failed startups liquidated everything, dumping tons of barely-used equipment on the market (famously Herman Miller Aeron Chairs, as well as the expected PCs, servers and network equipment). Large corporations started downsizing as well, reacting to poor macro conditions, meaning they dumped millions of square feet of vacant office space on the market for sublease just as demand evaporated.

With smaller everything, when (if?) this thing implodes, it's a whole lot less likely to bring the rest of the economy down with it.

This article is from the archive of our partner The Wire.