General Motors (GM) is an iconic U.S. company. It has been here for a very long time. It makes physical products – cars and trucks – that people can see and buy. It has also experienced bankruptcy and came out of it. There are many stories to GM’s second phase of life. This week, it is valued at $48.3 billion in the NYSE. Of course, GM has many challenges in management turnover, weakness in Chinese market, unbelievable giveaways through incentives to buyers and the fact that U.S. governments holds many of its stocks.
Groupon is a yo-yo company that does what anyone thinks he or she can do. It gives us deals to save and buy things at huge discounts. What it does is not a rocket science. Yet, it is already valued at $25 billion, according to New York Times.
The social shopping site, which recently spurned a $6 billion takeover offer from Google, has held discussions with Goldman Sachs bankers about a possible initial public offering that could value the company at close to $25 billion, according to a person close to the matter who was not authorized to speak because the talks were private.
So, Groupon is largely half of GM. How is that possible? It is the characteristic of the knowledge economy. Knowledge powers companies and physical assets is not a big part of the equation. Because of the emphasis on knowledge, disruption is quick and fast. Groupon can flame overnight just as it is arriving overnight. In the industrial economy, that was not the format. You have to have access to land to compete. Now, all you need is brainpower and availability of computing power. As barriers of entry have been lowered, so is the risk of disruption.
What is happening today may not make much sense to most people. That does not matter. Simply, it is knowledge that matters. You have to develop and commercialize that because it is the most important factor of production. Groupon major instrument is that knowledge which is the algorithm that helps them to match deals while not freaking out people. If someone comes up with a better one, Groupon could as well be history. Just ask Myspace, Bebo and the hosts of many other social media. It is a destructive construction of social enterprises where Darwin survival of the fittest holds supreme.
To succeed in the social media industry, you must be a knowledge person who can understand patterns ahead of others. This is not an industry where you just put money and forget. You will be burnt as AOL was. They paid $850 million and after less than three years sold it for $10million! You read right and it is from the New York Times.
By comparison, AOL’s acquisition of the social networking site Bebo for $850 million two years ago was tiny. But relatively, it proved to be as much of a fiasco.
On Thursday, AOL announced that it had finally unloaded Bebo to Criterion Capital Partners, a private equity fund based in Los Angeles. The price was not disclosed, but some reports peg it at $10 million or less, while others quote anonymous sources describing the price as an “exceptionally uninspiring number.”
If you do not have the brainpower or the capacity to see these patterns, do not waste your money in social media. You will be crushed and you will regret it. By the time you get in, the deal is already done. It is like investing in Yahoo now when the train has left the station. That is massive waste of money.
As Facebook, Zynga, Foursquare and the hosts of these companies go for IPOs, be patient. Wait for them to cool off. There will also meet resistance when real people begin to value these companies. You think Facebook is worth more than Ford Motors? That is what Wall Street says at $60 billion valuation. They may be right, but wait until ordinary people begin to put money. They will cool off because the kind of money these companies are raising defies order and economic decency. Patience is the game and in social media it will reward those that wait. Do not rush the IPOs because all the noise will clear soon. If you have not gotten into most of them by now through the “private IPO“, then wait a bit after they go public before you invest.