The Overpriced Social Network

Does this guy look like someone you can trust?  He is Warren Buffet, prophet sage god on all things investment related and he says social networking sites are overpriced and he is right.

Unlike banks, social networking sites are never too big to fail.  Remember Friendster, Myspace, AOL, Digg?  All gone with the wind when something slicker came along or they got too complacent and clunky.  Right now every start-up evaluates their worth with the hope that they will one day be Facebook but even Facebook has a limit.



On its way to being profitable, Facebook has stepped on privacy concerns and various ethical issues.   There is no template for internet success but there is a template for attracting attention and investment speculation and that has more to do with style than substance.  No system can grow infinitely but you will rarely find a realistic limit in a company's financial projections.

Investment speculation is the sin that keeps capitalism out of economic heaven.  It funnels resources to projects that are better at creating an image and diverts resources from projects that have actual value.  Rarely do I see a project where the image and the value are equivalent.  Is a 3 bedroom house really worth 500k?  Should electricity be so cheap considering the byproducts of producing it?  There is no factor to account for the human cost a product so people can be killed in the Middle East for resources and people die and suffer because they can't afford healthcare in the USA. Capitalism moves our perception of value from the tangible to the virtual all the time, setting the stage for purely virtual products like social networking sites.

The internet allows for people to choose their tools freely but threats to net neutrality may change that.  It remains to be seen if a social networking site will be chosen like a car (people tend to stay with the same brand for life) or like a pop-star - intense but temporary.

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