Investment Special: The social network bubble

It’s an irritating daily occurrence. The names of two or three people I barely know pop up in my inbox asking me to join their ‘professional network’, LinkedIn. Early on, I was tempted by the idea that being part of this family might widen my range of contacts, and perhaps also my story-gathering capacity. But then I realised that anything that had grown so big and amorphous was hardly likely to be a source of exclusive information.

Nevertheless, social networks from LinkedIn to Facebook are the new investment fad. Having been wrong about Google when it first floated — my view was that legal disputes over content meant that it could never work — I hesitate to be dismissive about the current generation of tech giants.

The movie The Social Network has redoubled the fame of Facebook and its co-founder Mark Zuckerberg. The power of social media has been displayed both in the Arab Awakening and in our own August riots. Shares in Facebook have already been distributed among favoured Goldman Sachs investors, even though it is not planning to come to market until early next year. Reports suggest that even though subscriber numbers may be flatlining, Facebook could  be valued at close to $100 billion.

Another star of today’s cyber-universe is Reid Hoffman, the former Apple and PayPal executive who launched LinkedIn from his living room eight years ago with 350 personal contacts. Now it has 90 million users. When it floated in May, pundits said its value would be around $3 billion. But in an astonishing first day’s trading, the market valued it at $9 billion, raising memories of the tech bubble of 2000. This was the first social networking site to test the public markets and the result has changed perceptions of their potential worth.