Valuation of Social Networking Sites, Social Networks, Identity 2.0 and Modern Branding

This post by Yme Bosma focusing on the economic valuation of social networking sites like MySpace and Facebook touches some important themes like closed versus open systems, the revitalized IPO and M&A markets, the future of social software/social networking sites and Identity 2.0. Below his own vision on this topic which I agree with completely, especially his historic reference to AOL.

I might as well extend it a little further. My thesis is that social networking functionality has the most value when specifically linked to a certain offline or online event. In effect, this means the (diminished) role of central social networking sites will migrate to discovering and sharing more general stuff. Furthermore, we will see goods, services and experiences in which the social value will be more important than the product or experience itself. Think Starbucks. Think Tripmates.com. Just like on the web itself right now as Web 2.0 is about connecting people, about the social web in which content (photos, videos, books, music) is an enabler for communicating and sharing. The content is key for generating traffic to these sites but the essence and emotional value is in the sharing/connecting. On a more abstract level, this relates strongly to the vision of Gerd Gerken - a German marketing writer in the nineties - in which branding is not so much about positioning a message in a top-down, one-to-many manner but more about creating offline and online environments and events in which consumers and prospects relate to one and other. The cultivation of relationships between the customers is the most important process in this respect that embody the values of an advertiser or company in a indirect, honest, non-controllable and non-intrusive way. This is branding in a bottom-up, many-to-many way that resonates with the thoughts of Michael Moon (more here on Michael, speaking 26th of October in Amsterdam, highly recommended). In sum, in my view the decentralisation of social networking functionality in the online world will increasingly extend to the offline world and facilitate the implementation of modern branding and positioning thoughts.

"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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