Do Soaring Social Media IPOs Portend Social CRM Doom?

Are we really standing in the shadow of a dotcom bubble redux?

An increasing amount of social engagement platforms are going public at high IPO valuations – Living Social, LinkedIn and Groupon to name a few. With Facebook poised for perhaps the largest IPO of them all, concerns are mounting about whether or not these platforms are sustainable.

Many companies are investing in marketing and customer service strategies designed around these social engagement platforms, which, in many expert’s opinions, are over-valued.

Vivek Wadhwa of the Washington Post expressed worry in a recent post analyzing the rise in IPOs of social engagement platforms as well as social gaming platforms like Zynga Game Network, Inc.

He said there are clear signs of another tech bubble, one that may result in a similar burst experienced between 1995 and 2000, where venture capital firms lost a significant amount of money and tech companies lacked the monetary means to bring their innovations to market.

And the valuations are exorbitant.

Living Social recently released a $1 billion IPO, with Groupon and Zynga touted at $20 billion a piece. Facebook, aiming to go public at the start of 2012, is aiming for $100 billion – a price which may double, even triple, before that time, Wadhwa said.

And even though LinkedIn is seeing $250 million in revenue after going public, Wadhwa explained only a 100 percent plus growth rate could justify the professional networking site’s $8 billion valuation – an unlikely occurrence.

Groupon’s uproven business model – one that offers deep discounts to users and splits the profits with participating businesses – has independent analysts who have reviewed the company’s IPO filings questioning the valuation.

Wadha also notes how Facebook’s technology has changed little since its launch, casting doubt on the companies worth compared to others like Apple – a world leader in innovation. Facebook is also finally losing ground on its torrential accumulation of members. While the company continues to grow in countries where it was more recently introduced, the company lost members in all the early-adapting countries – 6 million in the U.S. alone in May.

While these facts are signifiers of another bubble, bankers, investors and other IPO participants think the recent offerings reflect a "sane does of tech-enthusiasm," according to the Wall Street Journal (WSJ).

The article reports that though there is an increase in tech companies going public and in the levels of money they generate, we are nowhere near the dotcom fracas of the late 1990s.

Some of the strongest arguments in favor of a future tech bubble are developing over money invested in start-ups like Color, a social networking service and other private tech-firms.

According to the WSJ, overall the experts are saying those tech companies opting for IPOs have "real revenue and growth prospects."

For those companies looking to social CRM and trying to decide the personnel and resources to allocate to a social engagement strategy, the answers are not so clear. Increasingly, customers will seek and share information and recommendation through social engagement platforms. But hitching money and employees’ work hours to social engagement companies standing on precarious valuations is a dangerous proposition.

The benefit for the customer engagement professional is in the effectiveness of product or service itself and though the arguments concerning sustainability are valid, experts say we can’t assume the worst … yet.