Social media is hot. It’s what VCs are investing in, and bright entrepreneurs are looking for investment in.
It seems to me like there are three groups involved in this brave new world of media:
- The new New Media companies that are popping up every minute, each hoping to be the next MySpace or the latest hottie, Facebook.
- The people who use existing platforms to create and lead a community: the bloggers, the Ning community builders, the forum managers, etc.
- The audience: those who join the communities, forums, etc. and enjoy the ease with which they can publish online.
Group 1 wants to make money. Group 2 also wants to make money, although there are many out there who create communities around blogs or other media for casual purposes. Group 3 wants to have fun.
So how are Group 1 and Group 2 planning on making money? 99% of them are betting on ad revenues. I am continuously exposed to business plans as well as existing sites that, once they finish telling you all the brilliant ways they will create a community, break the news that they are depending on ads for their revenue.
I don’t know why this doesn’t make more people nervous. Here are my concerns:
- With more and more people building communities, the potential for ad revenue is decreasing. Even with the growing numbers of web users in developing countries like China and India, if you consider the ridiculous number of new blogs being launched every day, and the fact that people in China probably prefer Chinese sites, you’ve got too many sites for too few visitors (unless your site is in Chinese, I guess). In short, most new communities will not build up a large enough user-base to generate significant ad revenues.
- Why can’t these companies come up with a more creative way to make money? Why is everybody going for the community building-ad revenue model? If they’re so creative with the way they build their community, why does their creativity stop there? Can’t they actually sell something? It just seems so…”me too.”
- Has anyone taken a look at whether any rising stars are reaching stellar levels lately? Today’s big guys got into the business five/ten years ago: Google, FeedBurner, Facebook, MySpace, TechCrunch, Technorati, Read/Write Web, Boing Boing.
Update: Mark from TechCrunch stopped by to comment that TechCrunch is 2+ years old, and Facebook is less than five. He says: “these established players may not be all that old – which is probably why others think they can achieve glory quickly as well.” So perhaps there is hope for a new star…I’d better get to work.
New media is fun – group 3 has got it right. But while I am no expert investor, this has all the signs of a bubble to me. A lot of excitement over a quickly shrinking space with diminishing potential.
One thing’s for sure: with everyone betting on ad revenues, it’s clear who’s going to emerge a sure winner in this social media trend…