The Social Media Investment Lesson From Ashley Madison

This post was written a week ago for www.hnworth.com, a site targeting high net worth individuals in Singapore.

Have fun reading…

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Warren Buffet said he would not invest in anything he did not understand but at least he has a team of folks doing all the technology investments for him.

Buying a tech stock after the IPO one can suppose that one would have lost out about several thousand percent in valuation gains that the venture capitalist would have made, depending on which cycle of fund raising they entered at which does not mean anything for the giants like Facebook and gang, that fledgling companies would beg for them to be a shareholder of.

Yet it should be fair, one would suppose, given that not many of these tech companies make it to become a unicorn – “companies that have soared to a $1 billion valuation or higher, based on fundraising. The billion-dollar tech startup was once the stuff of myth, but now they seem to be everywhere, backed by a bull market and a new generation of disruptive technology.” http://fortune.com/unicorns/

Ashley Madison is one such potential unicorn, now a fallen unicorn, whose value has been decimated by a hacking scandal where its user namelist was made public and, as a result, many notable public figures and a respectable person has suffered shame.

Not counting the lawsuits and divorce cases or the un-quantifiable reputation damage of the scandal that has rocked the largest public adultery website, the proceedings have been an invaluable lesson from an investor point of view.

First, it emerged that many of the site’s users were fictitious ! And that male users outnumber females by a ratio of over 6 to 1. Then came the revelation that many of the women were not even women at all but were “bots” impersonating women. Does that not beggar the question if Ashley Madison was a successful site with a promising future that it so represented to investors and potential investors ?

That investors have been buying into “negative” PEs for nought ? And is the world not a better place now that Ashley Madison did come very close to listing in London earlier this year ? http://www.businessinsider.sg/how-close-ashley-madison-came-to-an-ipo-2015-8/#.ViyOeSspo20

The social media investment scene has erupted in our faces whether we like it or not and with it comes apps, programmes, platforms of sorts. It is beyond breathtaking pace as we are taken from the next best thing to the next better thing in this new world of the Internet of Things – “the network of physical objects or “things” embedded with electronics, software, sensors, and network connectivity, which enables these objects to collect and exchange data.” – where everything is linked at the touch of our smartphones and social media doctors help to save lives from halfway across the world with the right instructions. https://en.wikipedia.org/wiki/Internet_of_Things

From Fintech payment systems to crowdfunding, to service apps like Uber for car hires, there is no escaping unless one would choose to be left behind.

Social media budgets are bursting ahead at race speed and expected to take up 22.4% of total marketing budgets by 2020 even as ad blocking apps are rising up in importance and growing at record pace among users with almost 200 million people regularly using ad-blocking software according to reports. http://nyti.ms/1J64MVS

The Social Media Unicorn Lesson From Ashley Madison

It would strike one as a race to an uncertain finish that customer base growth with the odds stacking up against social media valuations, arming the ever fickle user, from personal experience in deleting apps as soon as one installs one, with the ad-blocking “vaccine” to one big revenue crushing ending.

 

And thus, user bases are possibly, at best, “revenue streams” that are plucked out of air for the thousand times PE that we are investing in.

We all know that for every Facebook, a Friendster, MySpace, Google+ and the once household names that are hard to recall these days, have given up. Household names that were once worth a pretty penny to their investors.

Even Yahoo’s ambitious acquisition of Tumblr for $ 1.1 bio in 2013 is not living up to its investment potential ………….. to continue reading.