Tuesday, August 2, 2011

Social Media Giants Should Cash Out

The latest headline says Twitter is now valued at $8 billion. Here’s my advice to the founders of it and its fellow social media giant, Facebook. Sell! Sell now! Don’t wait another day! Follow the parable provided by Steve Miller and “take the money and run.”

I have several reasons for this opinion.

First, at least as far as I can tell, neither company has developed a reliable revenue stream. The services they offer are free to users and I’m sure they’ll remain that way. Facebook has a few ads. Twitter has promoted Tweets. But neither can expand its corporate presence much without alienating its base. People who use Facebook and Twitter, me included, don’t want the experience marred by marketing. So where is the operating revenue of these companies going to come from? After all, being influential and cool doesn’t pay the bills.

Second, the estimated value of these companies is outrageous as evidenced by the $8 billion estimated value of Twitter alone.

Third, the nature of technology is transient. When was the last time you logged onto to your computer via Prodigy or AOL? How’s that MySpace page working out for you? Unlike a package goods company like Coca-Cola, things get outdated pretty quickly on the Web. Sure, some tech companies have made it to Blue Chip status, but they’ve done it, in part, through diversification. Google is into everything, including maps and phones. Twitter and Facebook are standalone communities.

I congratulate the founders of these companies for holding onto their creations for this long. If I were them, I would have cashed in long ago when the companies were worth far less than they are today.

Why not cash in? I guess it’s tough to let go of a company you founded, nurtured and grew well beyond anyone’s expectations. But if I were these guys, I’d swallow my pride and get out while the getting is good. I can think of billions of reasons to do so. I’d let Microsoft, Google or one of my many other suitors worry about finding a revenue stream. Meanwhile, I’d be on the beach with a margarita, planning my next start-up or pursuing a life of leisure and philanthropy.

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