GenuineVC David Beisel's Perspective on Digital Change

February 9, 2006

In the past couple weeks, we’ve seen an additional couple of fundings in social networking. While I think that there is a lot of opportunity (i.e. ripe ad dollars for the teen/music demographic) that many of these hot new start-ups are chasing, the space appears to be rife with competition.

As David Hornik described in his December post, Social Networks 3.0, we are entering another stage in the progression of networks. He outlines the transformation that “social networks are becoming an important ingredient of all sorts of consumer experience,” is due to the fact that “[it’s] clear that the building and management of a social network was not, in and of itself, a compelling consumer experience.” I completely agree that the new social sites provide “valuable consumer experiences that are enhanced by the underpinnings of the network,” but I think that this difference can be described in another way as well.

“Social Networks 2.0,” as David calls them (Friendster, Tribe, Orkut, LinkedIn, Spoke), were centrally about connecting people. The sole reason d’etre to be on Friendster was to have and demonstrate a friend network. In this this newest generation of social networking sites, people are connecting about something. MySpace and many of the other teen sites is about “me” and music, in The Facebook they’re connecting over the common bond of school experiences, etc. People want to share their experiences about subject areas in which they are passionate, and these latest networks give youth a vehicle to do that.

However, I believe that there are other areas which people are passionate about which would drive them to connect. And this desire is going to drive the creation and adoption of other vertical social networks. Just like we are seeing a proliferation of vertical search sites based on the unique needs and abilities to find information with a specific data type, I think we are going to see a rise in the number of successful (and potentially venture backed?) social networks covering many subject areas where people are very passionate about a subject. I’ve mentioned Ted Rheingold’s Dogster and Catster as an example in the past, but was only recently made aware of Leah Kramer’s Boston-based Craftster.org (profitable, 50K members and growing). It looks like the recipe is: pick your passionate subject, fill in your topic here: —-ster, and stir. Long tail, anyone?

One problem here is that the value of a network increases at an exponential rate based on the number of nodes in the network. So the more niche and limited audience a given subject area, the less able the network is able to take advantage of this exponential effect. But I’ve also argued that in the long run, the value of the network is not only determined by the number of nodes in it, but in the ability for the network to monetize those nodes. The question then is that if there’s a greater ability to monetize niche subject areas than more general ones because of the passion and interest-level involved in some of them. The answer is probably that it varies from vertical to vertical, subject to subject.

Another additional difficulty here is identifying a “social network” when more and more online consumer sites will contain social elements. So while it’s social networks moving vertical or vertical content sites moving social, both trends are headed towards the same place. And finally, as the number of social networks and connection-services grows, the likelihood of achieving the necessary critical mass for each one diminishes. How many services is the average consumer going to want to use to connect?

All that being said, I am anticipating a verticalization of social networks trend in the coming year or two outside the teen/music space, and potentially a few with the right combination of network size and monetization capability to really break out of the pack.

  • http://www.plentyoffish.com markus

    I’ve revolutionized the social networking/Dating space. The algorithms i’ve developed have allow me to create a massive site with less then 1% of fixed costs that other sites have.

    I am the largest 1 person internet company and I’ve been cash flow since day one, in the last year i’ve captured 60% marketshare in canada and just started rapidly growing in the USA. In the last month alone i’ve increased my average visitors per day by 100,000.

    I have more traffic then americansingles.com and true.com combined. Each company has over 200 servers and over 150 employees each. Most Executives in this space have a hard time grasping the fact that I could walk in fire them all and replace the entire operation with a handful of my servers and 2 hours of my time a day.

    There is a massive paradigm shift going on right now. The cost of developing and growing a site to massive sizes is growing to 0. The big talk about web 2.0 is the fact that hardware costs, bandwidth costs and software costs have dramatically fallen. What people haven’t really realized yet is that in “web 3.0″ companies like mine and future companies will need a fraction of the employees they currently do and that is going to create some amazing sites/business models and eliminate the need for most VC/funding.

  • http://www.linknsurf.com Harsh

    David,

    While we talk about social networks all the time in the web 2.0 world, the sad thing is that we still don’t associate social networks with information. The emergence of vertical social networks is testimony to the fact that people do not just want to link also to relevant information. Who is doing what in my social network, in my areas of interest is relevant information.

    Social networks, I believe can be leveraged to provide relevant information to people. So while social bookmarking, social search and social information have all become buzzwords. Out of these I see a new kind of network emerging…a social information network. In such a network people won’t have to go searching for relevant information that exists in their social networks.

    That’s the precept behind LinknSurf, a mobile application we just launched. It is about facilitating delivery of relevant information by leveraging a person’s social network.

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  • Rob Go
     - 8 hours ago
    Cool design focused event @bladebos Nov 6. Limited seats available! http://t.co/qHjU4WBeTx
  • Lee Hower
     - 1 day ago
    @vcparty that statement is true. FRC's LP base looks pretty similar to Sequoia's though
  • Lee Hower
     - 1 day ago
    @vcparty agree. some LPs have to bend their model, though best LPs don't care much about concentration - they focus on accessing best funds
  • Lee Hower
     - 1 day ago
    @vcparty thx - would slightly disagree trad'l LPs & smaller funds are misfit… best seed funds have trad'l LP base (albeit concentrated)
  • David Beisel
     - 1 day ago
    .@andypalmer shares solid thoughts on mission, values, & social accountability for millennials in the workplace: http://t.co/wsAz5Gj7K6

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