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The Social Networking Bust Cometh

June 16, 2008

vcmike

Cracks are emerging in the social networking bubble that has been puffing up for the last year or so.

Facebook’s crack-down on app-spam has dampened the previously euphoric growth of many social app companies, and their impending site redesign should accentuate this.

GigaOm’s post yesterday, “Social Networking Gets a Sanity Check,” seems to have struck a chord in the blogosphere, confirming that the bloom is falling off the social network rose.

No doubt this will lead the skeptics will be coming out of the woodwork jumping on the “told you so” bandwagon.

All this has me more encouraged than ever about investing in social media and social networking opportunities.  A trimming of the excesses won’t, I believe, reverse the trend of the web becoming a fundamentally social medium, nor will it erase the opportunity that exists for those who figure out how the social web will work.

What will happen?  Terms and valuations should recede to almost-reasonable levels for brand new startups which show promise but also lots of uncertainty and risk. Good ideas will be less likely to find competition from a slew of venture-backed competitors. And, perhaps most importantly, focus will return to basics like execution, team building, capital efficiency and business model, as opposed to land grabs, hype and acquisition strategies.

Sounds OK to me.

2 Comments

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  1. Andrew #
    June 16, 2008

    The problem with all of these businesses is that they are not sensitive to the natural dynamic that social networks create between consumers. The companies that can be sensitive to the variety of relationships that exist out there between people, and build trust and value for everybody will be the businesses that can take advantage of this massive oppty.

    The aformentioned businesses that are now “suddenly” challenged and are prompting the “I told you so” crowd were driven by short money schemes leveraged from the best practices created during the affiliate marketing explosion over the past 5 years. They ran out of distribution oppty’s and quickly attacked social networks as the channel exploded. Did anybody really think that these were the sustainable business models for the future of social networks?

  2. June 17, 2008

    No land grabs OR hype? Dammit… we might have to build Path 101 into a real company. Well, shoot… that’s not what I signed up for.

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