massornament

Oh... to think back to the time when the world was filled with 'phantom money'...

While there have been endless references to Facebook and now Twitter circulating on the lips of every journalist and newscaster these days, there have been a growing disucssion of the fact that these sites simply do not make money.  Before the most recent financial bubble burst, there was (seemingly) endless supplies of investment capital floating around and the fact that Facebook and Twitter might have, say, 150 million registered users had the financiers throwing… err… investing money in anything that might look promising.  Of course, now that we realize that the money venture capitalists had to invest was nothing more than phantom money (monopoly money if you will), there is little to go around.  So, I have been wondering if the latest fads in social networking will be jsut that… fads.  I mean, it is very surprising that Facebook would still be searching for a workable business model at this point in time and I honestly wonder if there is ever going to be the amount of ‘phantom money’ around like there has been over the last 10 to 15 years.  The complete lack of regulation over banking and financial markets in many countries (but especially the U.S.) led to years of magical wealth creation and, as a consequence, the creation of even more ‘phantom money’ to be put back into the system (by large or small investors).  Of course, the current financial meltdown (the likes of which have not been seen since the 1930s or the late 1800s) has changed everything completely.

What does this mean for Facebook and Twitter?  It will be very interesting to see.  One thing is for certain.  There is going to be A LOT less phantom money around and a lot fewer investors willing to take a chance on a company that has millions of users but little in the way of actual revenue.  In the past, companies like Facebook could probably get by promising that their business model would change and they would find a way to monetize or leverage the millions of users who use their service but do not pay for it.  Those days are probably over… at least for a very long time.

At any rate, I came across these interesting articles and thought I should share:

Chris Anderson, “The Economics of Giving it Away,” The Wall Street Journal (February 9, 2009), http://online.wsj.com/article/SB123335678420235003.html

Spencer E. Ante, “A Wrench in Silicon Valley’s Wealth Machine,” Business Week (December 18, 2008), http://www.businessweek.com/magazine/content/08_52/b4114082618241.htm