But not everything declined. In the realm of social media, the number of Facebook users grew dramatically, blog readership increased, and a new phenomenon called Twitter exploded onto the scene. It’s enough to make you think that using social media is the latest and best way to effectively build your brand. Various pundits suggest as much, and many brands seem to be buying into the idea.

However, I think that those who manage brands should look before they leap. I believe that the race to utilize social media channels is representative of the same sort of irrational exuberance that led the stock market to unprecedented heights and allowed people to have faith in incomprehensible financial instruments. For many brands, large-scale investment in social media campaigns is likely to prove just as ill-advised and imprudent. In other words, I think we may be witnessing a social media bubble.

The Power of Social Media

There is no denying that social media can be an incredible vehicle for change. One compelling example is the Facebook campaign that prevented X Factor winner Joe McElderry from reaching the top of the U.K. music charts last Christmas. The X Factor winner has been number one on the charts since 2005, so it was not surprising that after McElderry became the 2009 winner last December, the Telegraph announced that his debut single “The Climb” was the “all-but-guaranteed number one in the Christmas chart.”

But something else happened instead. “Killing in the Name,” a 17-year-old track by Rage Against the Machine (RATM), an American rock band formed in 1991, snatched the number one slot from “The Climb.” This unlikely upset was the result of a campaign started on Facebook early in December by husband-and-wife team Jon and Tracy Morter as a protest against X Factor’s monopoly of the Christmas chart. The news media picked up on the story, causing thousands of people to join the campaign; the number of fans on the Facebook page exceeded 800,000 (more than Google, Pepsi, or Wal-Mart). What is more, those fans acted. In the crucial pre-Christmas week, “Killing in the Name” sold over 500,000 copies. While 19.5 million people viewed the X Factor finale and 6 million voted for McElderry, only 450,000 bought “The Climb.”

A number of factors contributed to the success of the RATM campaign. First, the effort had the authenticity borne of its grass roots. It was founded by real people advancing a real agenda, and that agenda was one that tapped into a current concern — the suspicion that “big business” was manipulating the public psyche for its own ends. Next, the vehicle chosen to advance the cause (the song “Killing in the Name”) was highly appropriate. The song’s expletive-laden lyrics expressed the right note of anti-establishment sentiment, and the song carried positive associations for people who remembered it from the 1990s.