Technology Review
The economic downturn and uncertain business plans could result in an industry-wide shakeout.
The air seems to be coming out of the Web 2.0 bubble, squeezed by the economic downturn and the absence of many solid short-term business plans.
Dire market conditions have forced virtually all social-networking firms to scale back. In October, the third most popular social-networking site, Hi5, announced that it would cut between 10 and 15 percent of its staff. And in November, the business-focused networking sites LinkedIn and Jive said that they would slash their workforces by 10 and 40 percent, respectively.
The dominant social-networking sites are certainly better equipped to weather the storm: MySpace and Facebook have estimated revenues of $750 million and $300 million, respectively, while LinkedIn is expected to pull in between $75 million and $100 million this year. However, the overall value of these companies is still largely based on growth potential, which now seems shaky. Microsoft's investment in Facebook valued the company at a massive $15 billion. But in November, Twitter refused to be bought by Facebook for a reported $500 million of its stocks plus some cash.
The past week has also seen the demise of two prominent (and promising) Web startups: Pownce and Values of n. Pownce, which offered a microblogging and file-sharing platform, was acquired by the blog software company Six Apart, while Values of n, which produces organizational and social-networking tools including Stikkit and I Want Sandy, was sold to Twitter. Both new owners promptly announced that they would shut the original services down, suggesting that their acquisitions were more about acquiring talent and technology than about investing in viable new businesses.
Chris Alden, chairman and CEO of Six Apart, says that there simply isn't enough capital in the current market to sustain so many social-networking companies. "You'll see more consolidation in the next year or two," he predicts.
The current situation might seem gloomy, but the first signs of a coming shakeout appeared before the market took a turn for the worse. In August, for example, both the social news site Thoof and the social music site Social.fm ceased operating. Also, long before the downturn began, investors started raising concerns about how social media firms might make money.
"People don't really know how this is going to work," says Nicholas Economides, a professor of economics at New York University's Stern School of Business. Companies are trying many different approaches, but he says that a solid business model for social networking has yet to emerge. "There's no formula for success," he says. Even Twitter, for all its notoriety, has virtually no revenues.
Web 2.0--the dream of the user-built, user-centered, user-run Internet--has delivered on just about every promise except profit. Will its most prominent example, social networking, ever make any money?
Social-networking sites are fighting over control of users' personal information.
The prophecy putforth on internet Social
Network businesses and investments,
few months ago, and in this same
medium, is now coming into reality.
My friend, Jason, editor in chief,
can be a true witness on this same
analysis in one of my emails to
him in reaction to one of Emerging
Technologies publications.
A business is a business not by
number of social interactive clients
it gains in unit time, but how well
generating resources from the venture
are sustaining not necessarily in the
short term, but in the long term context.
More importantly, any business, relying
solely on loans and running capital from
investors, without forseable guaranteed
income generation from within, is
doomed to fail. I am therefore never
suprised at all.
At MPGA.TECHNOLOGIES, Multipurpose
Global Application Technologies, it
is essentially, extraordinarily
cautionary approach that evades
receipt of any monies from individuals,
private and governmental institutions.
We make sure the race is
steady, persistent and indepth.
And we will finish it and finish
it with every dignity, no matter,
lenght of time ....
a marked difference between management
from technologist's perspective and
a lay Executive's view point.
(martin@mpgatechnology.com)
Re: Social Networks dying out.
Words of wisdom,
Again solid business knowledge prevails.
I was always mystified by the bubble in social networks.
However, I am sure the M&A lawyers made out well.
Brian Glassman
Ph.D Candidate in Business Purdue University
Michael Fitzgerald's Article "Are Social Networks Sinking?" is in my eye's a solid piece of technology journalism. This short and well written article contained lots of supported numbers, and argues a unpopular view but realistic view of technology (social networking in this case). This is why I read Technology Review.
Thanks
Brian
Commercialization
Innovation Management
This is reason
While I certainly agree there is no escaping the laws of economics, which is what we see happening all around us, the author's reference to Jive Software only as a "social networking site" is a factual error. Jive is primarily a software company focusing on enterprise collaboration software and services. Its social networking services support that primary business focus. (Disclosure: I have consulted to Jive in the past.)
Dennis McDonald
Alexandria Virginia USA
http://www.ddmcd.com
Frankly, the peice seems to be well researched and carefully drafted, however, there are certain issues which need to be clarified. But for the time being this article is a good example of writing and researching on a very debatable subject where almost everyone has his or her different perspective.
Rakesh Sharma An Article Writer, SEO Writer & eBook Writer based in India
The social networks that are having problems are the general interest ones run by companies. The ones that are run by individuals (or small groups of people) and are focused on specific interest groups are doing much better. Some of those have an enormous number of users.
As with other trends on Internet, bigger is not always better. Hobby sites and small mom-and-pop online stores can grow as needed, only adding more complex financial stresses when they are ready to handle them. Having profit as the initial goal puts social networks on a deadline that most will not be able to keep.
- Jesse
Manufacturing in the United States is in trouble. That's bad news not just for the country's economy but for the future of innovation.
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1 Comment
Social networks are adjusting
They are not sinking, but as in the name of the site Powers of N, they are dependent upon the power of the network to provide value and if you have too many sites, then the value (for the user) just does not come. The current financial malaise is just helping this shakeout on its way.
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