Fun and interesting evening at the VLAB event that begged the question: Social Networking: Is there a business model?
I think we answered this question. Duh, yes. Actually, the attention swung to the other side: Social Networking: Is there a bubble? Interesting how quickly something can swing from the pejorative to the affirmative so quickly. I actually like how cynical we have become these days. Anything with the slightest market traction or investor interest is immeadiately suspect. Keeps us in check.
Oh, and the news of the event is an unconfirmed investment of $10 million by KPCB & Benchmark. The Boys of the Valley were there, including Bill Gurley who introduced me to my co-founder for RateXchange and the rest is history.
Anyway, here's my answer: yes.
Social Networking: Reid did a good job at the top of the talk describing how Social Networking is a classic consumer Internet play (low investment and customer acquisition costs), why the timing is right, how much room there might be in this space and the basics of the business model. What makes these plays great is the ability to have a low capital investment grow virally to achieve scaled value. Couldn't have done this before the infrastructure was in place, startup costs declined, competition was hampered and a critical mass of people engaged socially online.
Reid make a key point of how Social Networking is differentiated. Compared to Communities: based on common affinity, not connections facilitated by known individuals. I'll add to that that networks don't require a mission, a central cause for being there, its an individualistic phenomenon. He also pointed out that its different from marketplaces or directories. He raised point that didn't get debated: Is there room for many graphs or is there one? I think there is room for several, something I'll revisit later.
Jonathan said he will explain his business model and the supposed investment on his LiveJournal blog called something like hornyteenagegirl or something. You have to admire how fun it must be to be chief pimp, and thank god he was there to keep it interesting (we never got into the meaty social network theory we should have). I can't blame him from ducking. He also attempted to debunk the notion of a social networking space. The marketer in me says horse-pucky. He has a great category he is in front of, he has metrics and momentum to prove it, there is a unified theme and value proposition of enhancing social capital. But what does that matter to lonely people?
Cynthia made some good points about the lower cost of group-forming using free services and and open source software enables the creation of guilds like SPM. But hey, these are communities, not networks. And these tools allow people, not communities, to build their own networks.
Marc Canter asked his usual open question (FOAF), Reid responded sensibly that as the graphs mature its certainly an option.
Social Software: I don't know if I got my point across, so let me make it here. Our business model is antithetical to traditional enterprise software. Top-down software, with lines of code as barriers to entry, process and ontology that users are expected to fit themselves into, long sales-cycles and inordinate TCO -- is by all accounts dead and leaves users stranded with email.
The reason for this is the rules and opportunties have changed. You can't screw your customers. You can't lock them in. You can't ask them to take significant risk up front. Risk is shared with customers by providing incremental proof of value in-line with them taking risk on you.
While startup costs have declined, some have increased. Notably, its harder to sell traditionally (top-down) and you can't raise barriers to entry by locking-in your customers. The only entry point is bottom-up. The only marketable barrier to entry today is network effects.
The business model shares risk with customers, provides software as service, provides trial and open source options, maps to security requirements, is priced in-line with value, grows organically and above all, meets user needs without false constraints.
What Social Networking and Social Software have in common is people trying to connect. Someone please tell me what is more fundamentally valuable than that.
