Sep 04

For some reason, Hollywood goes through these periods where major studios race each other to get the same type of movies made on the concept du jour. In 1998, it was insects and asteroids. There was "A Bug's Life" and "Antz", as well as "Armageddon" and "Deep Impact". It's either a sign of borg like thinking from Hollywood executives or a sign of incestuous Hollywood relationships.

You also see the same phenomena in Silicon Valley. During the boom, you saw many companies going after the "new new" thing with little to differentiate one company from the next. You're starting to see the same phenomena today with Social Networking software with companies such as Friendster, eMode, Ryze, LinkedIn, Spoke, Tribe.Net, and Affinity Engines. Out of this list, Friendster seems to be getting the most buzz with the recent investment of $1M from prominent Silicon Valley executives such as Tim Koogle (former CEO of Yahoo), Ram Shiram (Google Board Member), and Peter Thiel (former CEO of PayPal).

Social Networking software is an interesting concept because it's all about applying software to efficiently track and manage the network of personal relationships. It's almost like the CRM/ERP of people's professional and personal lives. It's designed to help people look for new relationships (ie. acquire customers), maximize existing relationships (ie. sell to the installed base) as well as optimize their social interactions (ie. order management, manufacturing, supply chain, and distribution). If you look at how people do these tasks today, you could argue that it's a green field opportunity. It's no wonder that VC's are now making their bets among these emerging companies.

In some ways, Social Networking software is not a new concept. Existing technology such as mailing lists, bulletin boards, webrings, Yahoo Groups, and instant messaging are all examples of technology that facilitates social interaction and networking. It's common for people to make introductions and recommendations via an email chain that keeps getting forwarded across a relationship chain. The difference with the new crop of social networking technologies is that they focus on the multiple levels of relationships to leverage the so-called network effect or the "Six degrees of Separation". For example, with Affinity Engines InCircle product, you can blast emails out to your network as well as your network's network of contacts and keep going. Of course, there are privacy issues and potential abuse so these companies typically have ways of controlling privacy and the level of noise vs legitimate traffic in these networks.

So unlike Hollywood movies about insects, Social Networking software is based on an idea that has real merit and could have a significant impact on our personal and professional relationships. However, just like Hollywood studios, it looks like there are too many companies chasing this space without much differentiation nor innovation. If you sign up with one network, you'll soon realize that they're pretty much similar in functionality. There are some differentiators such as Spoke's ability to determine your network from your Outlook address book and sent emails, but the general functionality is pretty much the same.

An even bigger problem with these social networking software companies is the lack of standards and interoperability. Just like Hollywood studios who don't collaborate and cooperate with each other to make movies, each social network is essentially a closed community. Also, just like multiplayer online games, you have to invest in a social network to build it up before you really start enjoying the benefits. After you do it for a couple of sites, you start wishing that there was a product like Trillian to provide interoperability between these networks. An even better solution would be come up with a metadata standard for social networks. You can then create your profile and network definition once, saving you the hassle of building up your profile and contacts in every network.

Unless the emerging companies come together to form some standards, I can see them never reaching the critical mass to be successful as an independent entity. The more likely scenario is for an AOL or a Yahoo to emulate their functionality or acquire them and then bring the service into their own closed user community where they can achieve critical mass and profitability. This wouldn't be a bad thing for the investors, but I think it will be a loss for the emerging social networking space. As an industry, we've already made the same mistake with instant messaging, let's not repeat it with social networking.