Bull Whip Effect on Website Activity, Ad Spending and Valuations

Bullwhip effect is a term used in Supply Chain systems to describe the forecasting error that occurs as you move upstream in the supply chain cycle. A classic example is the manufacture of baby diapers. A baby might need two diapers in a day. Mommy would assume three would be the right number. The local distributor might estimate the total number of diapers required at four per baby and the manufacturer ends up making five per baby.

I noticed a similar trend when reading through a few stats today.

More people are using social media today – It consumes 17% of all internet time compared to 6% last year (link)

Advertisers see the increased activity and so increase the spending – Ad spending on social networks increased 119% in the past year (link)

Investors see the increased advertiser interest and so see the social media much more valuable – Twitter valued at 1 billion and receives $150 million funding in just the past two weeks

What they are failing to see is the usage of social media is actually falling. The activity on Twitter has started to stagnate and fall. (link)

The gap between the actual potential of the website and the valuation is alarming. Is this actually a bullwhip effect in action or am I reading too much between the lines?

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