Surviving the Commoditization of Social Networking

Posted on July 24, 2007
Filed Under Web 2.0 Kool Aid |

After a brief hiatus from posting (First Life always takes priority), I’m back with some thoughts on social networking.

Mark Hendrickson at TechCrunch has a great summary of the solutions that exist in the market for those wanting to start social networks. The number of solutions, the low costs and the ease with which individuals and companies can start their own MySpaces indicates what I (and others like Om Malik) believe is already a reality: the commoditization of the social network.

If we accept that social networks have become commoditized, and that social networking functionality will continue to be added to existing applications and websites, the question becomes: is there any real long-term business opportunity for standalone social networking startups?

On one hand, I’m a firm believer that the social networking phenomenon has been overhyped and that it merely represents the evolution of message boards and services like Geocities. On the other hand, I’m not entirely pessimistic and do think there is still opportunity in the social networking space for smart players.

For startups already in the space and for those considering entering it, success will not be easy, however I do think there are three high-level strategies that can be employed to increase the chances of success:

For anybody with a background in business, these may seem awfully basic. Every company should:

Unfortunately, I don’t see many social networking startups that can compellingly put a check by each of those three items. Their misfortune, however, could help startups that can. It is inevitable that the social networking space will cool down. It’s overhyped and commoditization is a reality. Social networking startups that have put the foundations in place to build real businesses are much more likely to find a way to survive and thrive when the downturn happens. As we have seen, some of the Web 1.0 survivors have cashed in years later. Maybe they didn’t cash in as quickly as they had originally hoped, but “get rich quick” is the exception, not the rule, in the business world. Bubble 2.0 survivors will find that out.

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2 Responses to “Surviving the Commoditization of Social Networking”

  1. Omar Ismail on July 25th, 2007 11:53 am

    Great post. I do have a solution that would probably work out well for everyone. If FB took their platform to the next level and allowed for Total Conversion mods (taking a term from the gaming community). Essentially, a company could completely reskin FB with its own interface and add new functionality (in the form of apps) that can be accessed directly from Facebook or even from the company’s own domain.

    This makes sense from a company’s standpoint since they get access to a huge community, and they save themselves a lot of time in implementing boiler-plate features. Despite social networking tools being a commodity, they still take time, money and energy to implement well.

    FB would benefit by retaining users instead of losing them to the niche communities. FB could even charge for such a premium service and treat it like Amazon’s EC or S3 storage services.

  2. Ben Strackany on August 21st, 2007 12:47 pm

    Ah Drama, I just found this blog. Good to see you’ve started up your own space. I’ve enjoyed your comments for too long on TechCrunch.

    I agree 100%. I think too many companies feel/felt that the technology will be a differentiator for them, or that they could ignore other aspects of running a business (managing capital, product management, marketing, etc.) and let the SNS drive them to cash & acquisition.

    There has always been commoditization of something (servers, programming languages, frameworks, etc), so perhaps many companies are just being lazy, i.e. thinking that they only need to build what companies built 1-2 years ago, and thinking that now that it only takes a month to put out a social network, their job must be done, right?

    And I think that some companies might still be successful if they aren’t as good at marketing/etc — they just need *some* sort of differentiator. And commoditization just means that another prior differentiator (e.g. having a social network) is going away, so companies either need to once again get far ahead in the technology arms race (e.g. mobile?), and/or run themselves like a “real” business.

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Drama 2.0 spikes the Web 2.0 kool aid by providing critical analyses of Web 2.0, its people, its startups and its impact on the world of media. Other topics are explored when Drama 2.0 has been drinking too much 1975 Dom Perignon. Read more about the Internet's version of Keyser Söze here.