Social Networking - the End of the Beginning.

Today there are numbers out from comScore that indicate plateauing growth for the big two — MySpace and Facebook — in the U.S. Last week, Revision3 canceled “SocialBrew,” an online video show dedicated to social networking. Meanwhile, Monster killed its Tickle social networking service, following closely on the heels of CondeNast’s shuttering of Flip and Verizon’s decision to close up its virtually unknown network, which had managed to garner a mere 18,000 members. (Verizon has shifted its community to Facebook.)
As the article notes, this will have knock on impacts on the me-toos following behind. However, it will have an impact on the big ones as well, because people's activity by and large declines over time - thus even if they keep the members they have, the traffic reduces over time. In the early days as they grow, users are also highly active, so you get a double whammy on traffic growth - but user activity declines over time, and if numbers flatten out - a typical S curve growth pattern - then traffic collapses

Now I originally wrote about this effect here - but here it is again graphically.

The impact of growth decline on social network traffic

Now when I originally wrote the article, I thought the major issue was that advertising revenue would decline, but at the time the jury was out on the potential advertising revenue. However, in parallel with the levelling off of user visits has been the realisation that pure social net Ad revenue CPMs are in the pennies. I have an new hypothesis therefore - that walled garden pure play SocNets will prove to be uneconomic, and will shift to open "pure play" - think web, email - to get low value commodity scale benefits, and also to niche higher value plays.

There's a deja vu here. Time Warner bought AOL at the peak of the Web 1.0 bubble in , AOL has bought Bebo at the top of this one. Soon after the Time Warner purchase the dotcom game collapse, I suspect that buying Bebo has marked the top of the silly SocNet valuation season.

But the SocNets won't go away - just as the Internet carried on growing even as the dotcom world crashed, so social network usage will carry on, even if the current crop collapse (In fact, AOL has made quite a lot of money in its slow decline and fall, and Facebook, MySpace et al are unlikely to collapse overnight). There was an interesting article in Fortune today about how companies are starting to use social networks internally - the article features a CEO who has implemented Facebook in his company:

"In Facebook, they can see what the people who are in the next generation of workers are already using. Every single software company has to go through this software-as-a-service transition. But it's not only how you build your software. It's how your people think. The people issue is much harder. Facebook gets people thinking along a new axis."

Now 800 of the company's 900 employees have Facebook accounts, and many use it actively. "It's been a game-changer for us," Burton says, "to go from an insular culture that doesn't communicate much to a more collaborative culture." Some employees still resist, like a few in France, for example, who worry about risks to their personal privacy.

Tsk - its those silly Europeans, worrying about Beacon and Facebook's Terms and Conditions et al . We do believe that privacy issues are one thing that will have to be resolved before we see widespread adoption of Social Nets outside the "naive young consumer" space.

I was also amused to read that the Fortune article is by a guy who is writing a book about how Facebook is changing the world (starting with the 100 year Media play I wonder?). If the above analysis is correct however, there is a risk that the book could suffer the "In Search of Excellence" curse (nearly all the companies in there failed miserably for years thereafter).

However, the spread of the impact of social networking has only just begun, as the Fortune article shows.

(Update - this storyline is also reinforced by this report - pointer via Read Write Web)