Social Media Startups

Social media is becoming the rage. You must have noticed that, in the recent years, a growing group of social and mobile web services are claiming that they are the leaders and are poised to become the next Facebook. These start-up companies boast of everything from stunning webpage views to user sign-ups to shared digital photos as methods of their success.

This issue became frontline news when Snapchat, the hot mobile photo and video messaging start-up, announced that its users send 400 million “snaps” every day just as reports surfaced that it had turned down a $3 billion acquisition offer from Facebook Inc. And then, according to the Silicon Valley rumor mill, it rejected an offer from Google Inc. for $4 billion.

A Snapchat official told Reuters by email that the 400 million snaps include both photos and videos that users received, but did not provide further clarification. The company said in a tweet last week that 88 percent of snaps are sent to one recipient.

The tech industry may not be in another bubble, said Aswath Damodaran, professor of finance at the Stern School of Business at New York University, referring to the rapid rise and fall of internet companies in the past 1990s and early 2000s. But these paper valuations are a “form of delusion,” he said.

Social media startups

What is pushing up the price tags? The ability of these companies to draw a fast-growing circle of young users, analysts say. Technology giants are willing to spend large sums of money buying these startups to keep up with young people’s rapidly evolving online habits.

But one thing that all the start-ups need to recall is that Facebook is one of the lucky companies to refuse suitors and come out on top. It turned down a $1 billion buyout offer from Yahoo Inc. and one for $15 billion from Microsoft Corp. Today, it has a market cap of $120 billion. But for every Facebook, there are plenty of Myspaces. Very few startups grow up to be huge successes.

By KJ Mason, G+ profile.

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