Are Social Networks Sinking?

Continued from page 1

Charlene Li, founder of the social media consultancy Altimeter Group, based in San Mateo, CA, says that it makes sense for smaller companies like Pownce and Values of n to be gobbled up by bigger players. "These companies had really interesting features and services that are much stronger being part of an existing service that has a lot of people using it," Li says.

Alden declined to say which aspects of Pownce's technology are most interesting to Six Apart, but he agrees with Li that many Web startups are largely focused around one good idea. "It's not always easy to convert that into a vibrant, self-sustaining company," he says. "When economic times are good, you have a longer runway to make that happen. When times get tougher, it dramatically decreases."

It's hard not to compare the current shakeout with the dotcom bust of 2000, but those within the industry dismiss the comparison. "That burst with a thunderclap; this'll burst with a pop," says Paul Gillin, a social media strategist based in Framingham, MA. He believes that this will be a less violent contraction cycle, less intense than that suffered, for example, by personal-computer makers during the 1980s.

At least there has not been the same profligate investing that there was during the dotcom days. There is no counterpart to the excesses of investors who put $830 million into Webvan or $280 million into Kozmo.com.

Six Apart's Alden argues that consolidation is in the nature of the startup business. He can speak from experience: his own startup, Rojo, was acquired by Six Apart in 2006. Alden also argues that no one should confuse companies shutting down or being acquired with a lack of interest in social media. "With the Web 2.0 or social media trend, we're still seeing very, very strong activity and behavioral trends," he says.