LinkedIn to float and other social networks expected to follow suit

Floating, it seems, could be the answer. LinkedIn has just announced an initial public offering (IPO) in New York, expected to value the business at up to $3bn (£1.9bn). (The professional contact-building network doubled its users in 2010 to more than 90 million.) Facebook, which has just raised a further $1.5bn valuing it at $50bn, is expected to hit the stock market next year. Commentators and investors are also eyeing Skype, Zynga and Groupon for impending flotations.

If LinkedIn's IPO is a success, these flotations are likely to come thick and fast. Founder Reid Hoffman's 21.4% stake could line his pockets with $642m if the IPO goes as well as expected - and figures in that realm will be hard for founders of other social networks to turn their noses up at.

Yet that nagging question still haunts these dotcoms - how will they make money? Or, perhaps, since their models of advertising and sales and app hosting fees and corporate partnerships now seem to be firming up, how will they make enough money to justify such weighty valuations?

Sure, Hoffman will see his personal savings account soar. A flotation might be the very lucrative means to an end for investors and founders, but what about all those who then buy shares? Critics point to LinkedIn itself only becoming profitable last year, eeking out $10m profit from $161.4m revenue. Facebook reportedly made $2bn revenue last year - a huge amount by many standards, but still only a modest slither of that beefcake valuation of the world's most popular social network.

Some, not least the makers of this funny and sceptical video, suspect that post-float, the economics of social media will fall on its face in a replay of the dotcom boom and bust of the 90s.

Yet Facebook now has more than 600 million users, and looks set to hit one billion ahead of schedule. It has a rich set of data to lure in corporate investment, in all its myriad forms (advertising, app hosting, and, if yesterday's Sunday Times is right, luring in app makers by allowing them to mine and resell data). It might face some threat from the steady stream of privacy problems it faces, but it seems to constantly conjure new gizmos (eg. the launch of Places today) to attract users enough to not care so much about the security of their data.

And those profit figures become more resounding in the context of growth. LinkedIn's revenues doubled in 2010 compared with the year before. Facebook's $2bn annual turnover was up from an estimated $700-800m the year before.

Let's not forget these are businesses that have only been going for a handful of years - LinkedIn launched in 2003, Facebook in 2004, Zynga in 2007 and Groupon in 2008 - making their rumoured floats all the more staggering.

Whether the markets trust the economics of social media as blithely as the investors falling over themselves to chuck money at these sites remains to be seen. We suspect the popularity and foothold in terms of sheer numbers of users these sites boast will whip up a storm of people ready to buy up shares.

But can they keep growing fast enough to keep the value of stocks going up? And, in the case of Facebook, will the scrunity that comes with going public push data security fears to the fore and damage commercial opportunities?

Is this just another dotcom bubble? Or will Facebook, LinkedIn et al be able to continue growth and become entirely sustainable public businesses? We'd love to hear your thoughts below.

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