The Internet has brought us an array of new technologies and new companies in which to invest. Many of these technologies are groundbreaking and while sometimes they can take a little time to become “mass-market” some of them are game changers. Unfortunately, history also shows us that first to market is not always the more successful but can lead the way for others in the future.
MySpace and social media
MySpace came from nowhere to become the leading light in the world of social media and a game changer for the Internet. In fact such was the company’s potential that News Corporation paid $580 million for the company back in July 2005. Between 2005 and 2009 visitor numbers to MySpace beat those of Google and it was the most visited website in the United States of America. It was only in April 2008 that the company was overtaken by Facebook but this prompted the decline of the once leading light of the social media world.
Such was the competition among social media websites MySpace effectively collapsed and was “given away” for around $35 million in 2011. Celebrity investors include the likes of Justin Timberlake and they had the idea of taking the company in a whole different direction. By June 2011 the company was down to just 200 members of staff and became but a footnote in the world of social media.
Paving the way for the second wave
There is no doubt that MySpace paved the way for the likes of Facebook and other social media websites. The company was effectively mismanaged after the acquisition by News Corporation which many said at the time had overpaid for the business. The problem was that News Corporation saw a growing business in an area of the Internet to which it had limited if any exposure. However, it soon became apparent that News Corporation was effectively out of its depth and this left something of a void which the likes of Facebook quickly filled.
Investors in MySpace did extremely well up until the acquisition by News Corporation after which time it was a slippery slope to obscurity. The $35 million sale price equated to a loss of more than $500 million on the original purchase price not to mention the millions of dollars which had been poured into the business. Even though MySpace is still trading today it only really covers the music industry and has lost all connection with its original social media activities.
Think twice before you invest in new technology
History shows is that new technology is very often underappreciated when it first emerges and perhaps over appreciated in the second wave. We only need to look at the market cap of Facebook which now runs into the hundreds of billions of dollars to show the severe swing in investor confidence. While we picked the subject of social media to highlight new technology and new services, the same can be said in areas such as electric cars, electric cigarettes and even the most basic form of personal computer. Who can remember Sir Clive Sinclair and his groundbreaking ZX Spectrum computer?
When looking to invest in new technology it is sometimes best to take a step back and see how things develop as opposed to jumping in at the first sign of good news.