Is Investing in Social Media a Good Idea

Over the last few years, social media has revolutionized the way people communicate and interact with others. It has introduced better and more efficient methods in the fields of business marketing, personal networking, journalism and even political branding.

The benefits of social media are further emphasized in today’s era of globalization. Social media particularly blogging and social networking sites have somehow leveled the playing field between small scale enterprises and large multinational companies. Clearly, social media has changed and transformed the lives of many.

In a pure business point of view, investing in social media shows promise even in these tough economic times. Basically, social media companies generate majority of their income from advertising revenues. Needless to say, even when companies are cutting on operating expenses, advertising will always be given priority, making it a very stable and solid market.

Facebook, arguably today’s most popular social networking website, is valued sporadically. According to a article published in January 2010, Facebook shares were being traded at extremely different prices.

Felix Investments were said to be willing to buy Facebook shares for $25. On the other hand, Digital Sky Technologies brought a stake at the Mark Zuckerberg-founded company for $100 million, at a significantly lower price of $14.77 per share.

From the two sales mentioned by Forbes, Facebook shows a very fluctuating value. Basing from the Felix Investments, the social networking giant is worth $11 billion while based on the Digital Sky Technologies, Facebook is worth $6.75 billion.

Evidently, estimating the value of a social media website is like finding a needle in a haystack. As in the case of Facebook, overvaluation can be a huge issue that can spell financial disaster.

On the contrary, the popularity of social media should not be ignored. Facebook has a huge global following. As of January 2011, Facebook has over 600 million active users. Similarly, the micro-blogging platform Twitter has an estimated 200 million users and generates 65 million tweets daily.

The immense and still surging popularity of social media makes investing in social media very much appealing to investors.

On one side, social media is seen as a fad. Some economists believe that social media is not here to stay for a long time. Even Warren Buffet, one of world’s richest men and chairman and CEO of Berkshire Hathaway Inc. warns against investing in social media. Another issue is that social media relies too much on the advertising industry to stay afloat.

Clearly, investing in social media is risky but such is the exact nature of the stock market. In general, there are several advantages and disadvantages which surrounds the industry. Investing in social media is a good idea as long as the specific investments and its markets are analyzed carefully.