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The Continous Commoditization of Social Networks

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Plain vanilla social networks are commodities and their values are headed north. With a handful of exceptions, there is no magic left in the social networking game. Proof is Palo Alto-based Ning’s Series C funding, led by Legg Mason, a company more known for its mutual funds than for its social networking skills. (Never mind, the fun fact that mutual fund companies were among the late arrivals to the dot-com party as well.)

Netscape founder Marc Andreessen and Gina Bianchini‘s start-up just raised $44 million at a rumored valuation of $214 million. Ning has 71,531 social networks. Assuming the speculation on valuation is correct, then the (notional) value of a social network is just over $3000, figuratively speaking.

Just to clarify, this is not to say that Ning’s valuation is depending on the number of networks. Because, if Ning continues to grow more popular, i.e. people keep adding more social networks, the value per network is going to decrease. My point is that, it really shouldn’t be a concern for Ning, because they really provide infrastructure, whether it is a network for three people or three thousand. It also proved my long standing belief that social networks are going to become mere commodities.

There have been much smarter people than me who figured this out a long before I did. One of them, David RD Gratton recently channeling Thomas Vanderwal, recently wrote “Beyond communities of Interest, communities don’t exist.”

Ning is just giving those communities a platform, that hopefully will be more reliable and faster, two problems we have experienced as Ning platform users. Ning powers the NewTeeVee Pier Screenings Network for gratis, and that is one of the reasons we have not complained. No Pay, No Complain!

My biggest gripe with Ning is that once you set up a network on Ning, you are locked in, and you can’t move your users with you, basically handing over your community to the company. Hopefully they can address this issue in coming months.

Update: Ning folks emailed us and let us know that the lock-in charge is not true, and send us a link to a document that explains how to export your community/social network. (link)

27 Responses to “The Continous Commoditization of Social Networks”

  1. David,

    i have this bad habit of calling everything that is post-2000 recent. don’t ask why: maybe the wounds of the 1990s bubble make me think like that.

    regardless, i think i ended up on your blog after someone left a link to my “quite obvious” pov, and since then I have become somewhat of a semi-regular reader. clip, save. delicious type reader.

    i think you and i are on agreement here, and that is the basic thing. if you drop me an email, i would send you something i have worked on for a while, though don’t feel too compelled to publicly share.

  2. Hi Om,

    Thanks for the link to my post, and the over the top compliment:

    Though it is two years old so not sure it should be called recent. The niching of social networks to more well defined communities of interest is well underway. The ramifications of this eventuality has got me thinking that Dave Winer is on to something when he states that social networks in their present form will “blow up and reconstitute [themselves]”.

  3. Om,
    Yours is the only sensible take in the blogosphere on this while situation. Notice how times have changed (again) from “Raise as little as you can” to “Raise as much as you can, just make it last this time”.

    The people who are planning that don’t understand that the Japanese deflation got worse, and lasted for years because of this precise behavior – no one would go out of business, and business would suck for everyone. The very reason the early web 2.0 darlings became darlings was there were so few of them competing for attention.

  4. Damian

    Way too much money, way too rich valuation (this is a software company right? Aren’t they supposed to be scalable WITHOUT a huge amount of case?), Marc has basically created LoudCloud part 2 – where any valuation will require a huge take out number that software companies, these days, just don’t get.

    Also, Ning allows you to back up your users – but you don’t get email addresses or any information you would need to port your service to another platform. Hence, lock-in.

  5. Rajeev Pokkyarath

    All this talk about networks (in a nebulous manner) also reminds me of another dot com craze – B2B marketplaces, exchanges, and a bunch of other concepts based on interlinked marketplaces/exchanges. It was all about slicing and dicing networks in all ways to create exchanges, hubs and so forth. I haven’t heard about Chemdex or paperexchange or ICG since then. Om, I guess you might remember “Let’s get vertical”

    This time around the network concept is directed towards the mass consumers and since it’s free, junta is jumping in mass numbers. It would be interesting to see how all of this plays out.

  6. This is not great news. Marc is writing fantastic stuff over on his blog talking about keeping it lean and not raising too much money. Then closes off comments the day before announcing a crazy $44m investment for a service that I have never come across.

  7. If you think 71,531 social networks is too many, wait till domain squatters embrace the concept.

    The same way parked domains use search as a tool to put pseudo content on their emplty pages full of links(, putting a social network will be the next in their numbers game.

    Then there will be 1,000,000 social networks :-)

  8. Roger

    Ning has an interesting concept. I dont see it going much above Template Websites, but many will be created and a few will grow into imitations of what has been done and each other. This will limit the total amount of successful networks because you only need to have so many MySpace accounts. The work it takes to create an account and then develop it is too repetitive and work like for you to do again and again. Besides isnt this the function of joining different MySpace groups?

    It is an Affiliate Program of sorts, but you have to pay to make any money. Godaddy has a similar program call Wild West Domains. Its $99 a year and you are lucky to make that back, but people are fanatical about their websites, even though the most creative work they is make a Banner Graphic.

    Ning will do okay, but its no Netscape.

  9. Om: Sure, and I agree there is value in running a hosted DIY social network service. There are certainly a subset of people who would pay for such a service, so that’s always a good sign. I just wince when I see stats posited like that.

  10. Mike D,

    i am not sure what their valuation metric was, but i was trying to make a point that the social networks are going to be a commodity and good – because that way people who are really my networks will be in my social network, not everyone.

  11. Andrew

    Why would anyone want to create a socnet and not be able to build it out themselves and make money off of it. Sounds like ning locks sites in only to up their own value. Get out before you get big. I dont get this at all.

  12. MikeD,

    I think Marc was making a pretty good point – 71,000 or 7 million – after reading his post, it seemed to me that point of Ning is that it is the infrastructure provider and pretty ambivalent about the total number of networks, how people on those networks, and what is the value of those networks.

    Maybe I am reading his comments differently than him. I do believe that the social networks are just that – networks, whose real value is the people who use them.

  13. Victor Agreda Jr

    Mike D., good point. It’s like Linden bragging about the number of residents in SL… ok, how about the number of people who actually use the service?

    Om, you’re right that vanilla social networks have lost their blush. Unique and niche services are up next. Hey, kind’ve a similar model to the publishing one, huh?

  14. I feel the need to follow my original comment up before anyone responds: I’m not saying Ning isn’t worth their valuation. I’m not saying they are bad. I hope they do awesome and make their investors and employees a lot of money. If they reached that valuation based on statistics like “71,531 social networks” though, I worry. That’s all.

  15. “Ning has 71,531 social networks.”

    Anybody who has not read “How To Lie WIth Statistics”, please do so now. I realize the importance of marketing-speak when you’re trying to puff your company up, but I wish people would start being more honest about this stuff. If I sign up for an account on Ning, that does not mean I (and therefore Ning) “have a social network”. That means I engaged in initial trial of the service and who knows if I ever came back.

    What if we establish a reasonable, generous guideline as to what actually qualifies as a “social network” on Ning? Let’s say “contains at least 5 members and is used by at least two of them once a week”? Pretty weak social network, but let’s call that and anything bigger a bonafide “social network”.

    What happens to the 71,531 then? Shot in the dark, but maybe it drops to 5,000? Then, we’re talking about $42,800 per “social network” of at least five people.

    My point is not that Ning is doing poorly. Maybe they are doing great… I certainly don’t have anything against them. And for the record, I think that hosting 5,000 active social networks is a GREAT thing to brag about. I just hate it when companies throw out numbers like this that they know are meaningless and misleading.