Does a Microsoft-Facebook Tie Portend the Next Net Bubble?
Though just a rumor at this point, the idea that Microsoft is negotiating to take a 5-percent stake in popular social networking site Facebook has some industry experts anticipating the next Internet bubble.
Ovum Research analyst David Bradshaw said the stake, which could run from $300 million to $500 million and value Facebook between $6 billion and $10 billion, could open the floodgates for social-networking vendors going public with high valuations.
"Indeed, it is such a large amount that it makes me suspect that were in the run-up to another bubble in Internet company values," Bradshaw told eWEEK Sept. 26. "If people see this happening, a lot of other people will seek to go public," he said, noting that the public is ripe for a new Internet bubble.
Thats right. Another Internet bubble. Another half-decade of sky-high valuations, lavish spending and high-tech incubators.
Fueling the high-cost frenzy for such properties as LinkedIn, Twitter, Bebo, Friendster and Digg, will be the desire to implement technologies from these companies into products for the enterprise, Bradshaw said.
Should some sort of Microsoft-Facebook union come to fruition, expect some of Facebooks social-computing tools to be incorporated in Microsofts SharePoint collaboration software, said IDC analyst Mark Levitt.
"My take is that Microsoft is active enough in the consumer Web space that an investment in Facebook may not result in any crossing over into the enterprise for the foreseeable future," Levitt told eWEEK. "But down the road, you are right that the Facebooks experience and technology could find its way into Microsofts SharePoint solutions for enabling business social networking."
However, Bradshaw said the stovepiped architecture of enterprise applications present some significant obstacles for vendors to address.
He said while social networks such as Facebook, of Palo Alto, Calif., and LinkedIn have made some strides on the recruitment ground, no one has cracked the selling of tools that enterprises themselves could adopt.
Aside from the challenges of negotiating social networking into enterprise systems, Bradshaw said that some problems with Facebook could preclude the company from rising as fast as some think and thwart his theory.
Those issues include privacy concerns associated with protecting minors from sexual predators and the ongoing legal action between Facebook CEO Mark Zuckerberg and his former roommates over the alleged theft of intellectual property.
Gilbane Group analyst Geoff Bock agreed that Facebooks privacy issues could scare off prospective companies. On Sept. 24, the New York State Attorney Generals office subpoenaed Facebook for documents that demonstrate the company is not protecting underage users from potential predators.
Read more here about Facebooks new battle with the New York AG.
Moreover, Bock downplayed the Internet bubble theory and has his own theory on the interest in Facebook.
"The reason for the valuation is that it is a platform, and it appears to be a platform for the Net natives, people who group up and live on the Internet all of their lives," Bock told eWEEK. "What weve seen time and again on the Internet is that places, locations, platforms and environments that get a lot of eyeballs and start doing useful things can get pretty decent valuations in the public marketplace."
Bock also took a dimmer view of social computing in the enterprise, at least in the near term. The analyst said that while Facebook and Google allowing mashups make them enormously popular, that doesnt mean these companies will help social-networking tools transition into the enterprise.
Bock said that enterprise content-management platforms from IBM, EMC and Microsoft SharePoint dont support social networking, noting that its not clear how social computing works inside the enterprise.
He said businesses would have to build relationships with customers to link the information, supply chain and value chain flows together.
"We dont have good software yet that manages those links," Bock said. "Every major company is working on defining and managing the links and I dont think the Googles, Facebooks and Amazons understand the enterprise enough to do that."
If any company comes close to socializing the enterprise platform, Bock said, its IBM with its Lotus Connections software.
Click here to read more about IBMs bid to take social networking to the enterprise.
Differences of opinion on the evolution of social-networking tools in the enterprise abound. IDC analyst Rachel Happe said she is moderately bullish on the notion of social networking moving into the enterprise, noting that "social networking provides a filter to information, and information is exploding online."
In fact, Happe called eWEEK Sept. 26 from the Emerging Technologies Conference at MIT, in Cambridge, Mass., where she said research engineers from Cisco Systems and Intel talked about how they are looking to use social networking to "evolve search to information discovery and filtering.
"They see social networking as an underlying platform for a lot of applications," Happe said, noting that her research showed that device companies are looking at social-networking applications and P2P (peer-to-peer) media distribution as something to bundle with their devices to better control information flow.
Meanwhile, Bradshaw concluded that with the evolution of this Web 2.0 world of social networking and collaboration, "Facebook is no more than a step along the way and that theres something further to come."
"Longer term, we believe that social networking sites have to evolve further," he said. "Maybe we need bubble 2.0 to burst before we can get to that, but lets hope not."
Burton Group analyst Mike Gotta said while the industry is still trying to understand what people want from a social-networking platform, the opportunity is compelling in terms of how social networking can alter product- and service-delivery models and also influence customer and community relationships.
But is there a bubble coming?
"We are so early in this phase that its difficult to position this as a bubble per se," Gotta said. "Instead, I view it as one aspect of broader societal, market and economic trends that are transforming business and organizational models."
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