What is this Groupon thing?: Social Media as an Investment Strategy

At least, that seems to be the message from investment banks.  Following Goldman's Sachs' dance with Facebook last month, JP Morgan recently announced plans to start a social media fund, says the NYT Dealbook.  The article notes that

Several popular social media companies, including the professional social network LinkedIn and the Internet radio company Pandora, have already filed to go public. Those filings presage even more eagerly anticipated stock sales by Groupon and especially Facebook.

Interest in these companies has been running high recently. Groupon raised $950 million in financing from several big investment firms, after having spurned a $6 billion takeover offer from Google. And trading in existing shares of these companies on private markets has been frenzied in recent months, with Facebook valued at $53 billion on SharesPost, a so-called “secondary market.”

I live in a place where Groupon is still irrelevant, but LinkedIn and Pandora are sites I know pretty well. Of course, I also know Plaxo, and Avvo, and Slacker.com, and Grooveshark (great site, by the way), etc. Social media obviously has created some new markets or at least greatly changed how old ones work. But this whole craze, especially from the investment community, reminds me of the first Internet boom, where companies doing traditional things suddenly started doing them "online."  And most of them failed.  (I realize, of course, that I am not the only person who thinks this might be the case.  Shocking.)

Even the start-ups that succeed were often not long for the evolving internet world.  Just ask Yahoo about that Geocities investment.  Of course, that wasn't a disaster for everyone. David Bohnett & John Rezne made out very, very well on the deal. I'm simply saying that Groupon's Andrew Mason may just end up kicking himself for turning down that $6 billion takeover offer from Google.  Then again, maybe they'll be in Grand Forks, North Dakota, soon.  After all, our FIve Guys opens tomorrow. 

--JPF