If you’ve run into any Venture Capitalist recently (you can spot them by the jean/suit combo and bottle of Evian) and asked them for investment advice, it’s quite likely they would have shouted words like "social", "cloud" and "mobile" at you until they were blue in the face.
Undeniably the hot technology trends at the moment are in such areas. Facebook’s purchase of Instagram for around $500 million (originally planned to be an even more eye-watering $1 billion) dramatically highlighted how popular mobile and social services are. Meanwhile the unceremonious downfall of Color, a social sharing app that launched with $41 million in funding but no product to speak of, shows how high the stakes are for companies competing in these sectors.
Why are the stakes so high? Well, consumer-facing social, mobile and cloud vendors are having a torrid time making any money at the moment. Popular services like Twitter, Tumblr and FourSquare (with $1.2 billion, $125 million and $71 million in funding respectively) boast huge userbases, but have yet to generate much in the way of income. Tumblr, the most tardy to the revenue party, only began introducing advertising earlier this year, despite being one of the most-visited websites on Earth.
Combine revenue difficulties with possibly the fastest-moving industry on earth, where users have attention spans measured in seconds, and you’ve got a shaky foundation on which to build a business.
The prevalent revenue model in the consumer-facing web is selling advertising - if your service suddenly loses those valuable eyeballs to a newer, slicker alternative, your revenue will nosedive, and it could very realistically be curtains.
Two consumer web juggernauts, Facebook and Zynga, are similarly suffering on the stock market. Zynga stock debuted in December 2011 at $9.50 a share, and after several disappointing quarters is now trading at around $2.20.
Facebook, after suffering through the mega-IPO that never was, has seen its stock slump from an opening price of $38 to a rather more modest $21 (although it is, at least, beginning to recover now). There’s undoubtedly plenty of innovation and excitement in the social and mobile consumer web, but profit? Lacking, it seems.
Turn your attention to the slightly less sexy (but no less innovative) world of enterprise social and mobile service, however, things are looking rosy. The largest supplier of enterprise cloud services, Salesforce, went public way back in 2004 and has seen its share price climb steadily from an IPO price of $11 to around $150.
Enterprise social endeavours are faring equally well. LinkedIn went public in May 2011, and saw their stock price increase by 109 per cent on their first day’s trading. Their stock is now hovering around the $105 mark - an increase of almost 150 per cent in just 18 months.
Yammer, an enterprise social network designed to improve internal corporate communications, was purchased by Microsoft this summer for a cool $1.2 billion (the announcement of which saw Microsoft’s slumping stock price climb almost 10 per cent).
The latest enterprise technology company to go public, Workday, a provider of human resources software, priced their initial offering at around $25. Their stock price has more than doubled to around $55 in the fortnight it has been trading publicly.
The hype and buzz may be firmly on the side of consumer services, but their enterprise siblings have something much more exciting - profitability.