vrijdag 6 oktober 2006

The valuation of social networks

There's an intense debate going on about the valuation of social networks like MySpace and Facebook as a result of RBC Capital's analyst Jordan Rohan statement that MySpace is worth $15 billion. This article tries to answer the question of why it is so difficult to put a value on these companies. And this quote below is interesting because it is in line with how I see social networking evolving:

"Metrick believes social networking sites will not be a passing fad. But there's no guarantee that MySpace, Facebook or any of the other current players will be the big winners in the end. Fader, too, believes social networking is here to stay, but he thinks it may work best not as a freestanding function but as an additional feature on sites that draw users for other reasons. Hence, the winners may turn out to be other sites that adopt social networking features. Or they may be new players, or current networking sites that broaden their offerings."

People will increasingly be part of multiple online networks that will be attached to other things. Sports, school, work, hobby, etc. To put it differently, there won't be just one network doing everything for everybody. Of course you can start a new network on Facebook for your basketball team, school, work and hobby. But it is more likely that these different networks will be connected behind the scenes so that it will be easier to become a member of one without having to create yet antother username, password, profile and friends list. So it's not one-size-fits-all, but it's a vision that's more in line with what Marc Canter is trying to achieve with his PeopleAggregator. Large social networks like MySpace and Bebo won't disappear (something Metrick is afraid of), but they will be facilitating this future because these were the first online networks people joined. And if they don't do this they will end up like AOL when they were trying to hang on to their walled-garden approach in a different era. Facebook made a serious first step in the right direction, Yahoo! too, and also some of the work around OpenID is interesting in that context. However, this all means that a lot of the advertising value will shift towards more niche oriented social networks. And therefore a $15 billion valuation for MySpace is nonsense. There won't be a winner-takes-all situation and that's a exactly what this valuation is based on.

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