Understanding the True Value of Social Media

Social media is America’s new supernova of wealth, and has created a new young generation of millionaires. This new boom of wealth is reminiscent of the 1990 dot-com explosion. But are these new millionaires going to learn from the mistakes of the past?

Investors, analysts and reporters have speculated that this new technology bubble is inflating. Last week, after going public the market value of LinkedIn swung from about $11.5 billion to $7.5 billion, currently it is valued at around $7.99 billion. Basically, we are entering the world of the unknown. http://dealbook.nytimes.com/2011/05/23/shares-of-linkedin-fall/

With more IPOs in the future, are Silicon Valley’s newly rich going to learn from the dot com bust (which left internet millionaires with worthless stock and massive mortgages) and start out the right way?  The Wall Street Journal identified a few tips for the newly minted millionaire and billionaires to avoid the mistakes of the past: http://online.wsj.com/article/SB10001424052748704083904576335593881998326.html?mod=WSJ_WSJ_News_BlogsModule

1. It is not cash; don’t spend it  – limit expenses to cash instead of paper wealth as paper wealth can vanish in a heartbeat.

2. Hedge, pledge and sell – advisors have recommended that founders and executives sell a large majority of their stock so they don’t have all their financials tied up in a single investment.

3. Stop and listen – instant wealth can be highly distorting. The newly rich should hold their money until they understand the customs, rules of investing, spending and giving away large sums of money.

4. Protect the reputation of your company – make donations, be philanthropic, and make sure that your organization is still invested with in the community

It is clear that social media is a technology that is being utilized by the majority of organizations and that it is highly valuable.  However, because it is such a new technology, we will not understand its true value until more IPOs become available and we see how stocks progress over time.