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:
- Focus on a niche. I’m a staunch believer that focused businesses that know their audiences and cater to their needs and passions have a greater potential for long-term success than businesses that try to be all things to all people. This is one of the reasons that I’m particularly skeptical about the Facebook platform, as I don’t think that applications layered onto the Facebook service represent the best method for servicing the niche audiences that exist within larger, general social networks like Facebook. Standalone niche social networks may never gain the reach of the MySpaces and Facebooks of the world, but they have significant opportunity because they can create a service custom-tailored to the niche audiences they serve. Additionally, good niche businesses typically have significant domain knowledge about their niches and therefore better understand the business opportunities that exist within it.
- Focus on the business model. Most social networks are not effectively monetizing their users. Many social networks are most focused on “cashing in” on the social networking hype and building to an acquisition. Others are focused on technological ideologies. This means that they are not focused on servicing the entities that pay the bills (advertisers, sponsors, clients, etc.). While there are a number of challenges to monetization on social networks and there is still a lot of experimentation to be done, social networking startups that can formulate a business model that is designed to provide tangible value to the entities that pay the bills will have a significant advantage. Put yourself in the shoes of an advertiser or sponsor for one moment. Who would you rather work with: a startup demonstrating a sincere interest in attempting to make sure your initiatives are giving you the results you need or a startup focused on getting bought out by News Corp. or creating a “social operating system”?
- Focus on viable growth strategies. The days of “build it and they will come” are long gone in Web 2.0. As I’ve previously mentioned, there is a myth that viral growth is easy to achieve. Viral growth depends primarily on critical mass. Therefore, startups with no strategy for achieving critical mass will never achieve the viral growth their projected success is probably dependent on. In my opinion, social networking startups should look to leverage existing audiences as much as possible. This may come through partnerships, affiliations or outright acquisitions. Of course, this means that companies who already have existing online properties with large audiences are at a significant advantage, as they can add social networking components and leverage their reach to grow them.
For anybody with a background in business, these may seem awfully basic. Every company should:
- Know who its customers are.
- Know how it’s going to make money.
- Know how it’s going to distribute its product or service in the marketplace.
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”
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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.
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.