Social networking – don’t invest in it just yet

Social networking is all the rage at the moment – indeed I’ve mentioned it’s value several times already. Social networks are an online extension of your existing offline interaction with people you know. They are a natural human activity so online social networks are something we can all see the value of without having to think about it. They will become the natural home of many people online. But, technology venture capitalist, Doug Richard, is warning the bubble could burst. Serious money has been invested in MySpace, for instance. But Doug Richard points out in New Media Age magazine that what users will really want is portability – the ability to have online identities and networks that can work on one platform, such as MySpace, as well as another, such as Facebook. In other words, he would think seriously about investing in a social networking platform, because as soon as portability arrives (and it will) users will desert a single platform, making its advertising business model collapse. I’m sure Doug is right; instant messaging is still having low penetration because you are tied to a single provider (except with the new version of Microsoft Live where you can also connect with Yahoo Messenger). People don’t like being tied in; email is universal, it doesn’t matter who your supplier is you can still connect with anyone else, plus you can change supplier without loss if identity. With instant messaging and social networking you are tied in; that’s why we have yet to see these things really take off. Portability is the essential requirement to make these work. That will come. It did to email – remember ten years ago? If you wanted to email you had to have a Compuserve address. Once real portability arrived, the dominance of Compuserve was shot to pieces. The same will be true for instant messaging and social networking. That portability will arrive and with it will come the collapse of the businesses that are currently dominating the marketplace.

more from Wharton Business School