Investors like to move in packs, and so it’s no big surprise that the success of MySpace and Facebook has led to a feeding frenzy in the social networking niche.
With Facebook in particular looking like the “Next Big Thing”, corporations and venture capitalists alike are pouring money into technologies and services that promise to connect people with one another.
Last week, these were among the headlines on paidcontent.org (an excellent source of new media news): “Sk Telecom to Invest $110 million in Online Businesses in U.S. [mostly in social networking site Cyword]”, “Social Voice Messaging Startup Snapvine Raises $10 million”, “Online Avatar Firm…Raises $5.4 million”, “MTV Introduces Cause-Related Social Net”, “Digg Adds Social Networking Elements”, “Facebook Creates $10 million fund to Developers”, “Yahoo Starts Testing Social Networking Service”, and so on.
In one sub-niche alone – social networking sites aimed at baby boomers – there are now more than half-a-dozen well-funded competitors, including Multiply, Eons, Boomertown and TeeBeeDee.
The appeal of the business model is easy enough to see. People using social networks populate them with lots of content and information about themselves, which is simultaneously attractive to advertisers and inexpensive for the site owner. The popularity of MySpace and Facebook would seem to indicate that lots of people do indeed have a strong desire to socialise online.Yet there are so many obvious hazards in the social networking business that the inevitable shakeout is likely to be especially brutal.
First is the well-known loyalty problem. People want to network on the site their friends network on, and if their friends move from, say, Friendster to Facebook, they will too. Friendster is the cautionary tale - the pioneering site that somehow became uncool and never recovered. Success can be fleeting when it comes to social networking.
Second, the mouth-watering promise of being able to target advertising to individual profile and behavior information is fraught with privacy problems - both legal and social. It is still not clear how much marketing intrusion people will put up. Especially when it becomes obvious individuals’ activities on a site are being monitored and analysed for advertising purposes.
Third, there is the self-limiting nature of growth in social networking. A video game fanatic might amass a library of hundreds of video games, but even the most avid social networker can’t engage in more than a few social networks at a time. It is thought a large number of the new users signing onto Facebook and other sites these days are very casual users.
A popular, if unscientific, formula for website participation says that one per cent of users account for most of the activity, and 90 per cent account for almost none at all. Big “registered user” numbers are not always what they seem.
Finally, there is the simple reality that the web itself is a giant social network, and as its collective capabilities increase social networks could start to look unnecessary. My 13-year-old daughter networks quite effectively with a combination of instant messaging, web video, and mobile phone.
Google, which already is the internet for many people, will certainly be aggressive in social networking. What’s more, it comes to the table with an essential service - a search engine that it does better than anyone else.
Social networking tools and services will continue to be an important dimension of many web businesses. But sites that simply offer up a set of tools for a target community and invite people to use them – as opposed to sites that have compelling content or services built in – are going to have a tough time.
My wager is there won’t be another Facebook, and a lot of money will be lost in the meantime.
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Social Networks are a good investment if the business model of the particular company has more than just advertising revenue as their chief revenue source.
Fortunately for Capazoo, we have a few avenues, as well as ones that will eventually be implemented down the line. In the event there is another .com bubble burst, it’s sites that have multiple revenue sources that will survive.
Fade Says:
I think social networking is only going to get bigger. WWW.WYPLANET.COM is the future of music distribution and music social networking they are giving away free legal music downloads som ething that has never been done at this level. It is rumored to be launching in january 2008 and has the backing of many major music stars and executives.
I think it was too many social networking sites. Some times, I really don’t know which to go. However, people will still stick to those they feel comfortable with.
This ones good to, lots of girls and 5 bucks just for signing up ! Cool !!!
It’s interesting that your daughter uses various different networks. I would say that her generation could be the driving force behind and industry who’s motto may be Network your Network. But any how your bet is probably correct. Money will be lost. Investors need to realize that there billions of smart people changing the market now, not millions. What they used to call trends have now become fades. The Machine is much lager, much more complex and much much more FASTER. Kinda like: Old Market is to Geo Metro as New Market is to Ferrari California. Which by the way isn’t even available yet!!!
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