ett"All of this raises an obvious question: How did so many Wall Street firms desperate to underwrite the Groupon I.P.O. miss these warning signs when pitching such a sky-high valuation? Or did they just turn a blind eye?"Groupon's Red Flags Were Missed -- Sorkin - NYTimes.com
Good question raised by the New York Times. A question that the catastrophic recent run of Venture Capital backed social media companies can only make more pressing. Why is it, with the clear exception of Twitter and Facebook, that so much money is being pumped in to so many new Internet companies that frankly suck.
Groupon probably is an easy one to forgive, just the name Groupon is so clever it is probably worth several million. And the idea of social shopping is probably a sound one, when Facebook or Wall Mart finally do it. But there are also Color.com, Quora, and Ning a surprising number of other sites.
The story of Web 2.0 since the movie Social Network has been one of catastrophic failure and no real solid money making success. Wikipedia has proven that Social Computing is for real and will change the world, Facebook and Twitter have demonstrated that this kind of power can be carried to the business environment, Google+ may be proving that an established business can tap in to this intensity.
Now for someone to take one of these companies to the stock market and run it like a Ford, General Electric, Microsoft, Google or Apple Computer.
So far social media has gone from triumph to triumph of engaging people, supporting communication, and helping people keep in touch while not building one clearly sustainable business in the process. In that way it is very much like the overall web of 1998.
Likely Facebook and Twitter will survive, but it is hard to think of many other great business concepts out there. The crop of new firms since 2009 managed to make Linden Lab's Second Life look like a sound business.
The difference between 2001 and 2011 is the fact that many people in the web community have learned to not trust markets. In 1999 dot com start ups were rushing to go to Wall Street and investors all over the world, especially employees of many of these same firms were dying to buy these stocks, stocks that turned out to be worthless.
The ugly store of Groupon actually proves the case for social media better than the success of Facebook in many ways. Groupon may have been able to fool smart people on Wall Street and in the venture Capital market, but people, ordinary people, are not rushing out to buy stocks in these Web 2.0 start ups. The wisdom of the crowd has not given these firms the kind of stock bubble that caused so much damage in 2000, and hopefully the wisdom of the crowds of developers and users will insulate the new technologies from the endless stupidity of a few guys in suits investing other people's money.