Social Networking hype coming to an end

Filed in archive Technology on June 7, 2005

Although I never invested into social software companies (as opposed to blogging ventures) I always found the concept intriguing and kept my mind open for business models to come.

But as it turns out now chances are slim that social networking is real goldmine. While some companies like OpenBC are nicely growing selling software others like Friendster and Orkut and even LinkedIn are loosing appeal. I personally haven't used any of the tools in month. Making contacts is tiresome and it's hard to reach connections outside of your network. So there is little practical use for me besides a big people search engine.

Now Ashley sends in this great article that sums up all the awkward things about using social software:

"Social networking is laboring under the inescapable weight of the dot-com curse: you have to find the money. No matter how cool your idea is, it's dead on arrival without an actual business plan. At least, that's the theory. If that's true, though, why has blogging, which seems like a neat idea dependent on interest but without a concrete revenue stream, managed to not just thrive, but really dominate the Web? How is it that free instant messengers are as indispensable as any search engine, and little guys like Trillian are still going strong? Is it really true that free services can't be effective business plans? Or is it possible that--gasp!--social networking isn't really that tenable an idea after all?

1. There's nothing to do there
As Business 2.0 points out, a simple destination site won't cut it. My big beef with Friendster was always, "Well, what would I do there?" Visiting most social networking sites is akin to getting invited to a party where all the cool kids are going, then showing up and finding out there's no food, no drinks, no band, no games, no pool, nothing. Just a bunch of painful small talk and leering grins. The people-watching can hold your interest for only so long.

3. Traffic alone isn't enough
The reality of the new Web is that traffic alone just doesn't cut it. You can get all the visitors you want to your site, but you can't just blanket the thing with ads and hope to survive. Advertisers today are a more sophisticated bunch, and they're looking to send targeted, rich-content messages. That means that reliance on a generalized supply of banner ads is not a sustainable model, because no matter how much data you collect about your audience, if the audience isn't specific, the ads can't be, either. Witness MySpace's projected $20 million in ad sales. According to Business 2.0, it's working because MySpace attracts primarily what it refers to as "16- to 34-year-old hipsters." The Web is becoming an elitist sort of space. If social networking sites are a way to bring the masses together, advertisers are begging for a way to prune those masses into smaller, easier targets."

What do you think is there a hope for social software?