Is social media a bubble and what does that mean for us?

By Neil Patrick

I love social media. But I’m worried it's becoming a bubble. Over the last couple of years, it’s been displaying some typical features of bubble-like behaviour.

We’re witnessing endless expansion of the main platforms. A rush of investor cash into ‘the next Facebook’. Irrational IPO valuations. A sense that we must get in or miss out. The rise of exploiters and gamification. Rising quantity but falling quality of content. And an ever rising number of scammers, fakers and fraudsters.

Gary Sharpe posted his take on this phenomenon the other day:

The evils of the social media scene have made the networks places of corruption, vice and crime. The levels of fraud, returns-on-incompetence, digital de-reputation, self-servicing, rip offs, anti-knowledge, time wasting, money-down-the-draining, preying on the weak/naive/desperate, copy-cats, liars, cheats and ill-informers has reached epic proportions.

Gary never minces his words!

I track stock market sentiments about social media platforms and there’s some definite nervousness showing especially around Twitter:

Only one platform, Facebook has managed to deliver the sort of revenue growth that investors expect to see. All the other platforms are struggling to meet this key objective.

Another of my respected online friends, Jesse Colombo, Forbes columnist, analyst, and bubble expert had this to say about LinkedIn way back in 2012: 

The general public, in my view, still has irrationally high hopes for the commercial success of social media companies and LinkedIn, one of the last vestiges of the social media dream, is expected by many to carry the torch for the sector going forward. These irrationally high hopes can certainly be seen in LinkedIn's astronomical 1,000 P/E ratio (source), which is far too rich even when taking into consideration the company's healthy expected 5-yearearnings growth rate of 64.69%. Richly-valued growth stocks, such as LinkedIn, have a strong tendency of plunging if there is even a slight disappointment in revenue and earnings growth.

Jesse’s cautiousness about Linkedin has proved to be well founded. Just look at the stock value since he wrote this in 2012:

Now I am assuming that you are neither an investor, nor a shareholder in social media.

But you are probably a user.

And if your use of social media has any sort of connection to your business or career this stuff matters.

So this post is about my take on what I see ahead and what we as users should do about it to protect our vested interests.

The outlook

First I see some consolidation ahead as undercapitalised platforms get acquired by others who see potential synergies arising from such acquisitions. The struggling share valuations make such acquisitions more and more likely. The worst case scenario is an event triggering total collapse of investor confidence in the sector. If you think that’s unlikely, think Lehman Brothers.

The implications

Weak revenue and profit growth is the principal reason for growing investor disillusionment with social media firms. This means that we can fully expect to see a steady rise in things we as users mostly don’t like – limited free access, more paid-for elements, more demands for personal data to access content and apps, more intrusive advertising, higher quantities of junk content.

More intrusive data capture

All data has value. And when you're a social media platform owner you have bucketloads of it. Better still you acquire it more or less for free. And you can secure pretty much unlimited rights over what you do with it - provided you describe these rights within a long and legally dense set of user terms and conditions which no-one ever reads, yet still clicks the “I agree” button.

More noise

We are already at saturation point. The sheer volume of content pumped daily into my social media channels is completely beyond my capacity to consume any but a truly tiny fraction of it. All our capacities to consume media are finite. But the supply is rising exponentially. The only possible mathematical outcome is a continual fall in the overall level of media consumption as a share of what’s produced. In other words, if you produce online content, you can only expect your overall consumption levels to fall in future.

What to do about it

So against this backdrop, there seem to me to be several sensible actions to take if any of your career or business interests are connected with social media:

Build real communities that share your beliefs

Having a million Facebook likes, a hundred thousand Twitter followers and 10,000 Linkedin connections, is going to become less and less valuable, unless they are a truly connected audience that has active goodwill towards you.

Earn your goodwill by being kind to your online friends

Goodwill isn’t created by people being so amazed at your profile stats, that they are wowed into following or liking you. Goodwill is created by showing people you care about them.

Focus on quality over quantity

The exponential growth of content and the finite capacity of people to consume it, means that content quality will become increasingly important.

Build trust

We don’t create trust by slick presentation, or shouting about how great we are, or bludgeoning people into submission with sales messages. We create trust by our actions that show we care about the people we are connected with. And by being willing to help them, whilst asking for nothing in return.

Own your own media

Social media platform owners have all recognised that crowdsourced content is a fabulous (free) source of assets for their businesses. By putting our work onto Facebook or Linkedin, we are surrendering our ownership of that media and placing our fate in their hands. And if you have any sort of online content, it’s essential that you own its domain. In other words “Don’t build your house on rented land.”

I’m not saying don’t post on Linkedin or Facebook, I’m just saying that if that’s all you do you cannot realistically expect to see value growth from these activities in future. The only sensible decision is not to have all your eggs in someone else’s basket(s).

Expect change - permanently

It’s easy to forget that social media has already had a string of casualties in its brief period of existence. Remember MySpace? Friends Reunited?

I believe that social media platforms have lifecycles. But because the pace of tech change is now so rapid and mature platforms so slow to change (Facebook is apparently working on introducing a ‘major innovation’ - a dislike button), I think there will be more casualties sooner than we might think.

When we try and predict the future, we are almost certain to be wrong. But I hope these observations are at least helpful in framing your own expectations and actions in the coming months and years.

I would love to hear your reactions to these forecasts!

Why qualifications won't guarantee you a job anymore

By Neil Patrick

Research says there's an abundance of skilled technical workers in the US. Employers say they can't find enough people with technical skills...so who's right?

Last week I was sent a report by a friend. It was a lengthy research piece which reported an oversupply of STEM (science, technical, engineering and maths) qualified workers in the US.

Since he’s an engineer who’s been engaged in a very lengthy job search, he couldn't square this report with the constant allegations from employers that they can’t find the right people with the right technical skills. He thought something didn’t add up. And I agreed with him.

The findings in the report were consistent with other examinations of the STEM labor market. These found no evidence of a general shortage of STEM workers. (That’s because they weren’t looking at the right things as I’ll explain shortly).

STEM jobs remain scarce not workers

In 2012, in the US, there were more than twice as many people with STEM degrees (immigrant and native) as there were STEM jobs — 5.3 million STEM jobs vs. 12.1 million with STEM degrees. And only one-third of US natives with a STEM degree that hold a job do so in a STEM occupation.

Further, one-third of STEM workers do not have a STEM degree, suggesting that absence of a STEM qualification isn’t an insurmountable obstacle to many jobs in the sector.

Perhaps most tellingly, real wages for almost all categories of STEM workers have shown almost no growth for more than a decade. None of this is consistent with the idea that STEM workers are in short supply.

So why are employers reporting the opposite?

At the root of the problem is the fact that the researchers were academics. In other words, out of touch with the real world. In fact it was quite possible, they’d never even set foot in it, such is the way that universities often hermetically seal their research people away from business and industry.

So where’s the error?

The researchers had used the number of people holding STEM degrees as their prime metric to measure the total available workforce of techies, and on this basis they concluded that the supply was ample to meet the needs of employers.

Here’s why that’s a mistake…

Employers do not view educational qualifications as their key measure of suitability for employment. It’s a hygene factor. It qualifies you for consideration, not for hiring. So it’s perfectly possible for employers to say they have a skills shortage because educational qualifications alone do not make candidates automatically employable. They also require (rightly or wrongly) evidence of relevant previous work experience and personality fit.

Introducing the latest bubble…it’s higher education

We all know that the recession means that business growth has been in short supply over the last 5 or 6 years. Meanwhile the educational fat cats have continued to happily make money by churning out people with qualifications, even though suitable jobs have been too scarce to allow sufficient numbers to gain relevant work experience.

It’s a pipe, connected to a tap – the tap has been left turned on and the pipe has contracted (at least for the past few years), resulting in an inevitable blockage.

Source: ONS

The higher education sector has become big business. And like all big businesses, it’s hungry for constant growth. As the graph above shows, the proportion of graduates in the UK population has more than doubled since 1992.

The educational ‘export’ market has been a particularly lucrative business as the aspirational middle classes have massively expanded in the far east economies. Every time I set foot in a UK higher education institution, the place is packed with overseas students.

This bubble  is unsustainable...

My good friend and bubble expert Jesse Colombo has done a great deal of forensic work examining the education bubble in the US. I’ll just quote a little of his analysis here:

Even more alarming than the rate of tuition growth is the blistering increase in total outstanding student loans, which grew 511% since 1999 to $1 trillion (surpassing total credit card debt for the first time), with today’s average student graduating with 50% more student debt than graduates in 2001.

Student loans made by the federal government rose a white-hot 31.9 percent in the 12 months through November 2011. Even Moody’s is warning that student loans may be the next financial bubble to burst, while a recent FICO survey shows that two-thirds of bank risk managers are seriously concerned about the student debt loads held by students in the country.

For more of Jesse’s detailed analysis of this topic just follow this link.

When I went to university here in the UK in 1981, well under 15% of my peers did the same. And the state paid for it by means of a modest, means-tested grant with a contribution from my parents (thanks Mum and Dad) which I had to supplement by working at (instead of drinking at) a bar.

Back then, universities were not businesses. For better or worse they were state institutions. And they acted like it…they were slow to change and whilst they could spell "innovative financial leverage", they didn't really practice it.

But that was all set to change when government decided that it was a good idea (i.e. vote winning) to proclaim that university education was elitist and it was socially just to get more young people from less privileged backgrounds into the university system. It also appeared to be a handy way to reduce the growing numbers of the young unskilled unemployed. Instead of a glut of young people signing on for state benefits as soon as they left school, this would create a new generation of educated and aspirational young people, eager to take the economy to hew heights. Except this had to be paid for by them signing up to government debt, using what I can only describe as career mortgages.

The trouble is that whilst I agree with its egalitarian principles, this vision missed the vital recognition that this expanded output from the education system needed to dovetail precisely with the ever evolving needs of business and industry.

And that's where everything went horribly and tragically wrong.

So do we have a more employable population? Not quite. While the elite universities have expanded only modestly, protected their brand value and retained their high quality standards, there’s been an absolute explosion of less selective, lower quality degree courses made available to almost anyone who is willing to pay for them.

Young and old alike are both losers in this game. Oversupply of university educated people has created a glut of unsatisfied aspirations and debt for the young, and done little to provide businesses with the skills they seek in their workforces.

For the mature and experienced, it’s seen the perception of the value of their years of accumulated know how crumble in the eyes of employers who place the highest value on the most recent qualifications (provided this is backed up with recent and relevant experience).

Oh and of course the UK and US governments have also burdened each and every one of us with another massive government debt that will sooner or later have to be written off or bailed out...