The Next Bubble

One of the highlights of our upcoming Personal Finance Issue in February is a story by former associate editor Natasha Mekhail (now a Vancouver-based freelance writer) on financial market bubbles. Called “Pop! Goes the Market,” it identifies the telltale signs of bubbles that happened in the past, from the Dutch tulip mania of the 17th Century to the cheap credit-fuelled United States housing market that unraveled over the past year and a half, bringing much of the world economy down with it.

Despite investors’ wariness (and weariness) of market irregularities right now, there remains a phenomenon out there that fits the experts’ definition of a bubble in the making. I’m talking about social networking. It’s been more than two years since, at the behest of my teenaged nieces, I joined Facebook. In just the last month or two I’ve been “invited” to join half a dozen more business and professional networking sites. They are getting more and more specific and targeted with every passing month.

This fits the classic mould of bubble formation: an innovation or technological improvement presents a really big business opportunity – in this case the holy grail of marketers, becoming the vehicle for millions of people’s day-to-day interpersonal communications. (Never mind that the revenue model is not yet firmly established.) So lots of players pile in, which in itself negates the utility of social networking. That is, from the user’s point of view, it’s preferable to have just one social networking site (a robust one, obviously) that everybody is on rather than having to maintain multiple profiles on multiple sites and still not be able to reconnect with that woman you met at that conference.

Now let’s go back to that Facebook page of mine. I haven’t looked at it in weeks, let alone the others I’ve subsequently joined. Social networking promoters will tell you all the kids are networking all the time. This may be true, but it still sounds like what you hear every time before a bubble pops, that the old paradigms no longer apply and we are in a new age when people will behave differently.

Here’s what I think: the more people work and earn and raise families – that is, the more desirable they become to marketers – the less time they will have to network electronically. By the time today’s teens and 20-somethings have the kind of income to make social networking really profitable, in other words, they won’t do it as much. There will be more young users behind them, sure, and there will be room for some market leaders to succeed in this space, just as Amazon persevered after the dot-com bubble popped. The social networking market will evolve and grow in the fullness of time but not fast enough for the many entrants we see today. Most will fail. Pop.

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