The economy may be troubled, but one area is thriving: social media. They begin with Facebook and extend through a dizzying array of companies that barely existed five years ago: Twitter, LinkedIn, Groupon, Yammer, Yelp, Flickr, Ning, Digg–and the list goes on. These companies are mostly private but have attracted the ardent attention of Wall Street and investors, with Facebook now worth a purported $75 billion and Groupon valued at close to $25 billion. There can be little doubt that these companies enrich their founders as well as some investors. But do they add anything to overall economic activity? While jobs in social media are growing fast, there were only about 21,000 listings last spring, a tiny fraction of the 150 million–member U.S. workforce. So do social-media tools enhance productivity or help us bridge the wealth divide? Or are they simply social–entertaining and diverting us but a wash when it comes to national economic health? The answers are vital, because billions of dollars in investment capital are being spent on these ventures, and if we are to have a productive future economy, that capital needs to grow the economic pie–and not just among the elite of Silicon Valley and Wall Street. The U.S. retains a competitive advantage because of its ability to innovate, but if that innovation creates services that don’t turn into jobs, growth and prosperity, then it does us only marginal good. The problem is that these tools are so new that it is extremely difficult to answer the questions definitively. As I was about to write this column, I overheard a cell-phone conversation at an airport with this snippet: “The company says they are using social media, but who knows if it is making any difference?” Flash back nearly 20 years and the same question was being asked about the first Internet wave. Were Netscape and the Web enhancing our economy, or were people just spending more time at work checking out ESPN.com Official statistics weren’t designed to capture the benefits, and didn’t–until statistics mavens at the Federal Reserve, urged on by Alan Greenspan, refined the way they measured productivity. As a result of these somewhat controversial innovations, the late 1990s became a period of substantial technology-driven gains. It is possible that the same gap exists today, that social-media tools are indeed laying the groundwork for new industries and jobs but aren’t yet registering on the statistical radar. Many companies believe social media make them more competitive. Ford and Zappos, for instance, use Twitter to market their products and address consumer complaints. Countless corporations have created internal Facebook pages and Yammer accounts for employees to communicate across divisions and regions. Industry groups for engineers, doctors and human-resources professionals have done the same to share new ideas and solutions on a constant basis rather than episodically at conferences. Staffing companies have been especially keen on social media; a senior executive at Manpower told me we should think of social-media tools as today’s version of the telephone. Yes, they are used for frivolity and all sorts of noneconomic activity , but they also help communication happen more efficiently.
