Tag: investment

Free content’s shaky foundations

The free content model of many Internet startups is inevitably flawed.

Musician’s rights advocate David Lowrie has a takedown on his Trichordist of Pandora’s campaign to change the US music royalty payment system through the Internet Radio Fairness Act.

Pandora and other online streaming services claim the current arrangement is unfair and puts them at a disadvantage to terrestrial AM and FM radio stations. Artists and record labels claim this is just a way to cut rights payments.

David suggests that Pandora’s founders either lied about the sustainability of their business at the time of their IPO last year or are just being plain greedy.

Regardless of what is true, or whether David is overstating the case against the IRFA, a truth remains that many Internet business models are unsustainable and Pandora’s may be one of them.

Most unsustainable of all are those who rely on free content.

Eventually the market works to filter out those who won’t pay for content – the good writers and artists move onto something more profitable, like driving buses or serving hamburgers, or they figure out they may as well control their own works rather than let some Internet company profit from their talents and labor.

The website or service offering nothing in return for the contributor’s hard work eventually ends up distributing garbage – Demand Media or Ask are examples of this.

In a marketplace where crap is everywhere, just pumping out more crap is not a way to make money.

Those looking at investing in businesses which rely on free content need to remember this, if no-one values the product then you have no business.

Sadly too many internet entrepreneurs, and corporate managers, believe the road to their wealth is through not paying artists, musicians or writers. They are the modern robber barons.

Robert Kiyosaki and the end of the debt era

A finance gurus bankruptcy heralds the end of the speculative era

Financial guru Robert Kiyosaki’s company going into bankruptcy last week marks the fitting end of the late 20th Century’s debt binge.

The book which propelled Kiyosaki to the best seller list, Rich Dad, Poor Dad was the bible of the flipper generation – much of the advice revolved around the tactic of putting as little money as possible down on an appreciating appreciating asset and sell for more than you owe the bank.

Advice like this was perfect for era of easy credit and cheap money and many of those who followed Kiyosaki’s advice, and that of many other get rich gurus, made money during the 80s, 90s and early 2000s.

In 2008 that party stopped and despite record low rates it’s become much harder to make money through speculation and the few who do are only doing so because of government intervention, which in itself is ironic given many of these people are quick to spout Ayn Rand, free market beliefs.

Kiyosaki’s company’s bankruptcy, while not directly due to failed property speculation, marks the end of an era. Hopefully it also marks an era where real investment and building productive businesses are the keys to wealth and fame.

Legacy people

Virgin America shows how quickly legacy operations are falling behind their younger competitors

“The problem with legacy businesses is legacy people” said David Cush, the CEO of Virgin America at the Dreamforce conference.

For many organisations this is indeed the problem; that managements, workforces and shareholders are locked into a way of doing business that has worked for them in the past, so when change arrives they are ill-equipped to deal with it.

One of the key take aways from the Dreamforce conference is that the rate of business change is accelerating as technologies like cloud computing and the Internet mature.

For the legacy businesses locked into old ways this means they are going backwards faster than they could imagine.

A good example of this is when Virgin America showed their vision of how customer service works in a connected, social world.

The problem for companies like United and the other legacy carriers with their older aircraft and lumbering IT systems is they simply don’t have the infrastructure to provide these services if they wanted to.

One of the characteristics of 1980s management thinking is under-investing in equipment. ‘working your assets’ by flogging them way past their replacement dates is a handy way to increase profits and management bonuses, but it leaves a business exposed when newer technologies come along.

That’s the problem the legacy businesses, whether they are airlines, banks, telcos or in any other sector. Those who are nimble and those who have invested in new systems can take advantage of the change.

For some of these businesses even if they had the wits, and cash, to make those investments it’s dubious whether they could make the tools work properly.

‘Getting it’ is more than just understanding how to turn on an iPhone or send a tweet, it’s about how these tools can be used in a business.

If you don’t know how to use these tools, or understand the consequences of using them, then the investment is wasted.

For those organisations who are falling behind, they have to start moving quickly or their legacy is the only trace there will be of their existence.

Owning the customer

Is it possible to own the customer?

During the tech boom of the late 1990s the early wave of web developers had a business model that required locking customers into a relationship.

Having spent thousands of dollars for designing and building a website, a business then found they would have to spend hundreds of dollars every time they wanted to make even a minor change.

While that model didn’t work out for web designers as new tools appeared that made it easy for customers to look after their own sites, it’s still the ambition of many businesses to ‘own’ as much of the customer as possible.

Department store credit cards, supermarket petrol cards and airline frequent flier programs are all examples of how big businesses try to lock their customers into their ecosystem.

Possibly the dumbest, and most counterproductive all, are the media companies with policies of not linking outside their own websites. The idea is to keep readers on their sites but in reality it damages their own credibility and betrays their lack of understanding how the web works.

The airlines too have discovered the risks in trying to ‘own’ their customers as their devaluing frequent flier programs has irritated and disillusioned their most loyal clients.

Many businesses, particularly banks and telcos, try to tie you up into knots of contractual obligations with reams of terms and conditions. All of this is an attempt to make the customer a slave to their business.

Outside of having a legally protected monopoly, you can’t ‘own’ a customer – the customer has to grant the favour of doing business with them.

They’ll only do business with you if they trust that you’ll do the right thing by your promises; whether it’s delivering the cheapest product, the best service or quickest delivery. The moment their trust begins to slip, you risk losing their business.

Executives who talk of the concept of owning the customer are either working in organisations with little competition or those steeped in 1980s management practices. If you hear them talking like that, it might be best to take your business, and investments, elsewhere.

Owning customers didn’t work for the web designers of the early 2000s and it won’t work for businesses in other sectors. The only way to ensure most of your clients keep coming back is to deliver on what you’ve promised them.

Billion Dollar Babes

Is every successful startup worth a ten figure sum?

“It changed everything. It changed the game for a lot of us and you know it made a lot of people feel very anxious and sort of compare their own success.”

Lisa Bettany, the founder of Camera Plus lamented how Facebook’s billion dollar purchase of photo app Instagram purchase changed the start up community on Australian current affairs program Foreign Correspondent.

In the program  Foreign Correspondent also spoke to Australian and Italian startup founders looking to make it in Silicon Valley. On being asked what they hoped their business was worth they all had the same answer – a billion dollars.

There’s no doubt Jindou Lee’s Happy Inspector home inspection app or the Timbuktu kids’ story website are great products and should be successful business. But is business success only measured by a billion dollar exit?

In Garrison Keillor’s Lake Wobegon every child is above average, it seems in Silicon Valley every successful business is worth a billion dollars.

Every founder in the current app or web 2.0 craze says “it’s not about the money, it’s about changing the world” yet scratch them and they are all on the lookout for the greater fool buying them out for an improbable sum.

One could say that a billion dollar cheque does change the world of the person cashing the thing although exactly how a iPhone photo app changes the world may escape some of us.

At the same time the Foreign Correspondent story was being aired the founder of Y Combinator – Silicon Valley’s most successful accelerator ‘s founder – warned the heat is now out of the market after Facebook’s market flop.

Paul Graham was elaborating on a letter he wrote three months earlier where he said, “If you haven’t raised money yet, lower your expectations for fundraising.”

If the billion dollar valuations are going out of the startup mentality then it might be better for all of us. It might mean our youngest, best and brightest really are focused more on building things that will change the world rather than buying mega-yachts for themselves and their VC investors.

Economic cholesterol

How Australia’s property prices are the real reason for the country’s poor productivity.

Australia’s productivity isn’t growing and it’s fashionable among business community to blame Australia’s productivity decline on high labour rates.

While there’s an argument that the cafe worker earning $25 an hour is overpaid – although we don’t hear the same criticism of multimillion dollar packages paid to executives with at best mediocre track records – the argument is far more complex.

In the McKinsey report linked to above, the mis-investment is put down to the recent resource boom, but is this really true?

To really understand why Australia hasn’t performed well, we need to look at why the country is so reluctant to invest in assets that will increase our productivity.

The role of property

Underlying the recent Australian “economic miracle” is the property industry. The country’s domestic building sector is one of the most efficient job generators in the world. Stimulate the Aussie property market and job growth ripples quickly through the economy.

This was one the lessons learned in the 1990s recession – successive governments and bureaucrats have learned the mantra “go early, go hard and go residential” when it comes to cutting interest rates and introducing home building incentives like the first home owners grants.

It was no coincidence that when the Rudd Government was faced by the Global Financial Crisis they launched a wave of initiatives to boost the property industry and shore household wealth. Just as the Howard and Costello governments did in response to the Long Term Capital Bank collapse, Asian economic crisis or the 2001 US recession.

While those stimulus measures have kept Australia out of recession for two decades, the failure to unwind the measures after the economic shock has passed leaves the nation’s property market remains “hyper stimulated” and over valued. That over investment in property has sucked funds away from other areas which affects the competitiveness of Aussie industry.

The great property squeeze

One of the great tragedies of the 1990s was Sydney’s East Circular Quay precinct which could have been one or two of the world’s greatest hotel sites, literally on the steps of the Sydney Opera House.

Instead, high priced apartments were built on the site and Sydney’s tourism and convention industries are crippled by a shortage of top end hotel rooms.

Tourism isn’t the only industry affected by the Australia’s obsession with residential property – across the country service stations, sports clubs and convention centres are being demolished to make way for high rise apartment developments. No economic activity seems to trump property speculation when it comes to attracting Australian investors.

Ideological beliefs

Adding fuel to the property obsession are the ideologies of the 1980s which are still closely held by the nation’s business and political leaders.

Capital gains tax concessions introduced by the Howard government in the late 1990s made property and share speculation far more attractive that invention, innovation or entrepreneurship.

To make matters worse, Australia’s social security policies and taxation laws favour capital gains – any Australian over thirty who has tried to build a business has plenty of mates who did far better out of negatively geared property than those who foolish enough to create new enterprises.

For those older entrepreneurs facing retirement, they are in for a nasty shock if their businesses don’t sell for what they hope. They would have been far better staying in a safe corporate job and buy a few negatively geared investment properties.

Again, this ideological belief that capital gains trumps wage or business income means investment is steered away from productive assets and into residential property that can be held for a capital gain.

The Ticket Clipping Culture

Australia’s failure to invest in productive assets is not just a feature of the household investor, the corporate sector has a lot to answer for as well.

While good in theory, the superannuation system has been a failure in providing a capital pool for new and innovative businesses and productive investments.

The superannuation trustees have largely focused on hugging the index, the ticket clipping funds management culture means that any real investment for productive assets is restricted to funding toll roads where fat management fees and guaranteed commissions mean an easy life for those fund managers.

In a perverse way, the short term appearance of the ticket clipping might mean increased productivity as costs are cut to improve profits. In the medium and long term, the lack of investment in these assets means in the long term these assets too cease to add productive capacity to the economy.

Of course there’s more to infrastructure investment than toll roads and airports with crippling parking charges, but the ticket clipping classes of Australia’s investment community don’t see a quick buck in that.

Increasingly the boards of Australia’s major companies are appointed by those running the superannuation funds and these people have the generational bias away from productive investment. Instead they see slashing IT, training or asset investment as costs to be cut in the quest of boosting bonus delivering profits.

More fundamentally, three decades of consolidation in most of Australia’s industries has seen a generation of Australian executives whose main expertise is that of maximising their market power at the expense of their competitors. Investing in productive capacity is not a major concern for those corporations.

Fixing the problem

Getting Australians – whether mom and dad property speculators or high paid fund managers parking money in the ASX 200 or plonking money in the latest toll road boondoggle – to change attitudes and invest in productive capacity is going to take a generational change.

As long as the attitude persists that property is a safe investment that doubles in real value every ten years then Australians are going to continue to ply cash into apartments and houses.

It is possible that a period of Australian Austerity that suppresses property prices may force that change in investment attitudes. An weak property market is one of the unspoken effects of the spending cuts advocated by many right wing commentators,

The question is whether those commentators, or the political classes who derive their much of their policies from right wing ideologues, view have the stomach for disruption that will come when weaning Australians from the teats of corporate ticket clipping and property speculation.

Saving Fairfax

First we sack the managers, then we find some decent editors

“The writer and art critic was one of the great ex-patriots of Australia and he put our country on the map.”

One typo illustrates all that is wrong with Australia’s two oldest newspapers, The Age and The Sydney Morning, who are both part of the Fairfax stable.

It’s particularly disappointing that one of the leading newspapers in the city of Hughes’ birth could have such a dumb typo, but adding to the insult is the paper’s underwhelming and disappointing coverage as compared to the New York Times, the paper of his adopted home town.

Hughes was one of many in his generation left Australia because of the lack of opportunity. Fellow expatriate (note the spelling) Clive James said he could have never have developed his writing skills without the sharp editing his copy was subjected to at London’s newspapers. That is as true today as it was in 1960.

Poor editing lies at the core of Fairfax’s problems, not just in silly typos but also with inappropriate stories like leading with a shop assistant’s Facebook profile or the hysterical regurgitation of spin doctor’s talking points.

This isn’t to pick on Roy Masters and Asher Moses, both are capable of great work — Asher’s Digital Dreamers series profiling Australian technology expatriates (that word again) was excellent work and when Roy doesn’t get sucked into the petty ego wars that dominate Sydney’s Rugby League community his sports writing can match the world’s best.

Both Roy and Asher, along with every other journalist at Fairfax, are let down by poor editors who don’t have the balls to tell them when work isn’t up to standard, let alone pick up dumb typos.

If Fairfax is to survive, it requires strong and good editors that are prepared to hold their writers accountable and back them when the going gets tough. Right now Fairfax lacks those leaders.

That lack of leadership extends throughout the organisation’s management and board. Fairfax’s management lacks people committed to delivering a great product or capable of grappling with the challenges of making online journalism pay.

Making online journalism pay is more than just having one-way Twitter accounts, plastering your site with ads or irritating your users with auto playing video clips. Web strategist Jim Stewart dissects how these tactics aren’t working for Fairfax.

Whoever figures out how to make money from online journalism will be the Randolph Hearst of the 21st Century, currently it’s safe to say there are no budding Hearsts or Murdochs among the comfortable ranks of Fairfax’s management.

Can Singapore become a global VC centre?

Singapore’s SingTel has an interesting way of dealing with competitive threats in a new market.

While Silicon Valley grabs most of the headlines about cool new businesses Singapore has been quietly building its own position in the global venture capital industry.

SingTel, the city state’s main telco operator, setup their own venture capital fund in 2010 with Singtel Innovate investing between S$100,000 and thirty million in various ventures.

The strategy from SingTel, which is closely aligned with Singapore’s government, is a very canny one – it allows the telco to move beyond being a “dumb pipe” just providing the phone network and fits into the nation state’s aim to be one of the centres in an increasingly Asian centred global finance system.

Yesterday SingTel launched a new Australian startup venture, the Optus Innov8 Seed fund which offers investments of up to A$250,000 in new start up businesses in return for equity or other stakes.

To identify the right investments SingTel are partnering with various start up groups and incubators in Sydney and Melbourne which is an interesting way to filter out unsuitable businesses.

Being funded by a telco, the Optus Innov8 program is naturally focused on the technologies that are going to help their business in an evolving market, the areas they are currently looking at are mobility solutions and digital convergence.

For Singtel and Optus this is a long term investment as equity stakes in new technologies will position the business well as their industry evolves and margins come under pressure in their core telco market.

To businesses looking for investments, the Innov8 program is a welcome addition to the funding landscape but Singtel also offer access to Asian markets with operations in India, Indonesia, the Philippines, Thailand, Pakistan and Bangladesh.

Edgar Hardless, the CEO of SingTel Innov8 says “if you’re looking at going into the Indian market, we can help with introductions. Same with any of our other markets”.

Those introductions are useful but probably more important is the market intelligence that a partner like SingTel can bring on board. Understanding foreign business conditions is a great advantage for a foreign venture.

Asian markets can be tough, particularly for Australians who have been bought up with a US centric view of the world, but there are plenty of success stories. There is a successful group of entrepreneurs catering to the massive Indonesian market while companies like Dealize have moved their head office to Hong Kong.

Dealize was part of the Pollenizer incubator which is one of Innov8’s partners. At the launch, Phil Morle of Pollenizer pointed out that his business has set up a Singapore office to take advantage of the favorable investment conditions there.

While Innov8’s program is relatively small, it’s a much needed addition to Australia’s start up and venture capital scene and will help some new businesses in the app and mobile space.

Hopefully a few other corporations are looking at SingTel’s lead and thinking how they can tap into these new industries that may disrupt their own.

For Singapore, the city state has always had a number of advantages for the finance industry. By expending into new financing new sectors they are securing their own future in the 21st Century.

Can Sydney become a smart city?

What are the challenges facing building a down under entrepreneurial culture?

How does a city become smart? That seems to be the question of the moment as countries and cities around the world try to figure out how to catch a little bit of Silicon Valley’s magic.

As part of the 2012 City Talks series, the City of Sydney hosted a discussion on how the city can become a smart city;

Sydney is bursting with talented, creative and forward-thinking people. How can we harness the energy of government, education, businesses, media, and creative thinkers to create space for innovation?

While it’s questionable that a “creative space for innovation” is a worthy objective – albeit laden with buzzwords – it’s certainly true that Sydney, along with other Australian cities, has the components to be a entrepreneurial centre, the question is how does the city harness the various talents across the different sector.

Working to advantages

Rather than aping Silicon Valley, New York or Ireland all cities should be exploiting their natural advantages. Fast Company Magazine recently looked at how Oklahoma City has advantages over its bigger cousins in New York and California.

For Sydney, and Melbourne, those strengths include an educated, multi-cultural workforce with first world legal systems in a similar time zone to the world’s major growth markets.

One of the tragedies in Australia’s marketing over the last twenty five years has been the failure to mention the ethnic diversity of the nation. This is huge competitive advantage that is barely being discussed.

What can governments do?

At the Sydney City Talks event, Lord Mayor Clover Moore said that creating a smart city requires “the same incentive to be given to innovators and creatives as is given to property investors and mining companies.”

That change requires state and Federal governments to change laws and businesses, particularly banks, to pick up on those price and policy signals.

Education too needs reform although this needs real consultation or we’ll end falling for short term fads or copying the damaging anti-teacher jihad that has infected the US.

A welcome change for many Australian innovators would be changes in government procurement policies as currently all levels of government prefer to deal with the local offices of large multinationals. As the Queensland Health Department debacle shows, these organisations are often less competent than local providers.

Making those changes though will require major reforms to policies and laws, something that neither major Australian political party at any level has the courage or vision to do.

That the NSW Digital Action Plan is now in its thirty-first draft speaks volumes about the inertia among the city’s, state’s and country’s political and business leaders.

Ditch the Silicon

Probably the first failure of imagination is the “silicon” tag – US entrepreneur Brad Feld skewers this nicely in his blog post on The Tragedy Of Calling Things Silicon.

Sydney has already has a group called “Silicon Beach” which has spread out to Melbourne and the Gold Coast and it’s interesting that both Google Australia’s CEO and Engineering head want to co-opt the name.

On of the suggestions was “Silicon Banana” a tag which brings to mind the phrase “kill me now please?” to anyone already uncomfortable with the ‘Silicon’ label.

The “Silicon Banana” idea comes from the curved shape of Sydney’s ‘digital heartland’ which curves from Darling Island to the west of the city and curves around the edge of the city centre through Surry Hills across to the film and television facilities at Fox Studios.

Describing Sydney’s centre of innovation as lying within the ‘banana’ illustrates the lack of thinking outside the current app and web mania. It also neglects the bulk of Sydney, particularly those parts of the Western Suburbs where languages such as Mandarin, Cantonese, Korean, Vietnamese, Arabic or Hindi are spoken.

Once again we neglect those assets because they aren’t white, Anglo or living in the prettier parts of the city.

Does it have to be Sydney?

We should keep in mind that the Silicon Valleys of the past haven’t been the biggest cities – Silicon Valley itself is barely a city and San Francisco is not one of the US’ biggest cities.

It’s quite possible that an Australian centre of innovation could be any one of dozens of smaller towns such as Geelong, Wagga or Cairns.

The problem in Australia is, once again, property prices. Compared to the US or Europe, housing and office rents aren’t substantially cheaper outside the big cities unless you’re prepared to move to seriously blighted parts of the country.

Spinning the wheels

Probably the most disappointing thing of the ‘smart city’ discussion is just how bogged down we’ve become – there was little in the City Talk that wasn’t being spoken about five, or even ten, years ago. Things have not moved on.

Creating a smart city isn’t about picking winners among industries, suburbs or groups. To really be smart we have to give the opportunities for clever people to succeed.

Simply jumping onto today’s technology fad or mindlessly aping Silicon Valley is to squander our advantages and not learn from the mistakes of others.

The real worry though is just how little progress is being made in seizing today’s opportunities. It doesn’t bode well for tomorrow’s.

Too much money

Overcapitalisation of a business can be worse than too little money.

Having too little money is the problem for most businesses, for a few though the opposite is the case. Overcapitalisation can be as fatal to a venture as being starved of funds.

In the dot com boom of the late 1990s we saw young companies being swamped with too much money which was squandered on flashy offices, comfortable chairs and expensive executive diversions.

Most of the businesses failed as staff didn’t have to worry about gaining and retaining customers while investors didn’t put pressure on managers or owners to perform.

The hospitality industry is particularly prone to this, with cafe and restaurant owners plunging hundred of thousands – sometimes millions – into expensive fit outs and ridiculously expensive kitchen equipment.

Most of these overcapitalised outlets fail because the owners have spent too much on setting up the business and not enough on staffing or providing for ongoing costs.

We’ve seen in the past few years many celebrity chefs teaming up with flush investors to build expensive restaurants with these ventures rarely ending well.

The story of Justin North’s chain of restaurants going into administration is a classic case of this, as the Australian Financial Review describes it;

The Norths, both in their mid-30s, don’t have a wealthy financial backer. They poured in all the cash they had and sold kitchen equipment and other assets to finance the venture.

Westfield kicked in an undisclosed amount.

Ostrich-skin leather tabletops, hand-printed wallpaper, and a huge custom-designed Fagor induction stove imported from Spain (the first of its kind in Australia) contributed to the huge fit-out cost.

In a statement to employees, the North Group said its “businesses are currently in financial difficulty”.

“The administrators are now in control of the group’s assets and affairs and intend to trade the business in the ordinary course whilst undertaking an urgent review of the financial position and explore various restructuring options,” the statement said.

For much of the Australian hospitality industry, the Norths’ problems are a glimpse of the future – the success of the Australian and Chinese stimulus packages in keeping their respective nations out of the mire the US and Europe indirectly led to a boom in restaurant spending and investment.

We saw that boom manifest itself in the opening of pretentious restaurants and the explosion of food blogs as desperate PRs flogged their clients’ venues to the media.

There’s a lot of journalists and food bloggers who are going to find a welcome improvement in their eating habits as the fine dining market now sorts itself out.

It’s going to be tough for those who’ve invested too much or the smaller suppliers to those restaurants.

An area we should be critical of journalists is with headlines like “Restaurant Group Collapses“. A business going into administration is not “a collapse”, it’s in fact the opposite where the shareholders, directors or creditors seek to find an orderly way out of trading difficulties.

Putting out the word that a business has “collapsed” makes the task of salvaging the enterprise much harder for those working to fix the problems.

The Norths have taken the honourable and sensible option. While putting a business into administration can be a brutal process – particularly for the shareholders, investors and smaller creditors – it at least shows the group’s founders have acknowledged the problems in their businesses and are looking to fix them.

All too often, we ignore the fact our businesses are going broke and don’t take the action needed to save them. Doing it early means less pain for everyone.

Having too much money is often worse than having too little money, although most of us would love to be in the position of having big money backing our ventures.

We often talk about learning from failure and not stigmatising entrepreneurs who’ve given it a go and failed, how we treat Justin and Georgia North will be a good measure of whether we are really an entrepreneurial culture.

Raising venture capital is not the measure of success

Bringing investors on board is an important part of a business’ growth, not the end game.

“Those guys are successful, they’ve raised half a million from investors,” one startup commentator recently said about a business.

Is raising money the benchmark of business success? Surely getting investors on board is part of the journey, not the destination.

Having some investors coming on board means others share the founders’ belief their idea is a viable business and it’s a great ego boost for those working hard to bring the product to market.

That cash also exponentially improves the survival chances of the business – too many promising ventures fail because the founders haven’t enough capital.

While it’s an important milestone in the growth of a business, raising capital is not the end game. Only minds addled by the Silicon Valley kool-aide believe that.

In fact, if you’ve set up a business because you hated working for a boss, you might find your new investors are the toughest task masters you’ve ever worked for.

Good luck.

Does Facebook’s float mark social media’s peak?

Is social media about to plunge into the trough of disillusionment?

After its successful float on Friday, social media giant Facebook’s stock is now 18% down on the IPO price and there are claims some investors were aware of revised analyst expectations shortly before shares went on sale.

Facebook’s share price isn’t being helped by large advertisers, most notably General Motors, publicly expressing their dissatisfaction.

In SmartCompany’s survey on business tech use, one statistic that stood out was that less than 30% of businesses were happy with their returns on social media.

Facebook can’t even win in the courts with a Californian magistrate throwing out the social media platform’s trademark case against a Norwegian pornography site.

It’s been clear for some time that the tech industry has been in an investment bubble and social media services have at been the centre of that hype .

The huge expectations of Facebook’s float value has been one of the drivers of Silicon Valley’s investment boom – a dangerous feedback loop in itself.

So now Facebook’s share price is in decline and angry investors are asking “why” and demanding answers from advisors and banks.

The real question though is does Facebook’s float mark the peak of the current tech boom in the same way AOL’s merger with Time Warner in January 2000 marked the peak of the original dot com mania?

One of the great similarities with the original dot com mania is the businesses’ failure to make money from their services – today’s Pintrest and Twitter have that much in common with the great Dot Com boom debacles of Pets.com and Boo.

The biggest problem with the social media services is most of them are advertising dependent. As we see from General Motors’ dissatisfaction and that of the businesses in the Smart Company survey, most businesses aren’t happy with the performance of social media platforms.

Getting the advertising, or other revenue streams, right is key to the survival of these services. Google cracked this after the original dot com boom and are now one of the most successful companies ever.

The companies that figure out the revenue models for social media, or online news, will be the next Google’s and Facebook could well be the business that cracks the code for social media.

For the social media industry overall, it appears the sector is now at what Gartner calls the “Peak of Inflated Expectations” on their hype cycle.

The next stage from the peak is the tumble into the “trough of disillusionment” and that appears to be where Facebook is heading.

As Gartner points out, that trough is also where good, stable businesses are built. While the sector or technology is scorned, those who survived the tumble out of fashion are able to consolidate and learn from the harsh lessons they’ve received.

Eventually the market rediscovers the technology or industry and eventually becomes accepted as a mature part of business or as Gartner put it, they enter the “plateau of productivity.”

This is exactly the process Amazon went through during the dark days of 2002 and 2003 after the tech wreck which today finds them as one of the Internet’s giants.

Whether Facebook can emulate Amazon or Google is for history to judge, but social media’s falling out of favour is not a bad thing, the wreckage of the current tech mania will see much stronger and viable social media businesses that will deliver real value to industry and society.

In the wreck of the dot com boom we saw HTML “coders” reduced from driving Porsches to driving buses, the same thing will probably happen to many of today’s social media experts. That in itself is not a bad thing.