Social networking lacks credibility.
And it's not hard to understand why. Small VC firms receive two or three proposals for new social networking sites every single week. Large VC firms are getting two or three every single day. Most are terrible.
A conversation with a friend sums up the situation well
11:19:57 PM Bobby: social networking is a really tough sell nowadays
11:20:05 PM Bobby: because you hear about amillion ideas for a social networking site
11:20:33 PM Bobby: and ppl are kind of scared of it and theres this stigma associated with it, like "oh god its another social networking site, whoopdedoo, web 2.0."
The problem here is that the vast majority of proposals for new social networking sites fall into two categories:
1) Me-too sites with one or two new features. "We're like Facebook but we let you trade files!"
2) Really niche social networks. "We're like MySpace but for knitters in Canada!"
Rather than discussing these approaches right away, let's first outline the three ways in which social networks can connect people. We can then use this framework both to understand the current state of social networks and also to identify new potential ways to create value. After doing this it should become apparent why the two approaches above are so problematic.
Social networks can connect people in three ways. They can strengthen existing relationships. They can connect friends-of-friends. And they can introduce complete strangers.
Each of these cases requires a completely different approach to sharing information, communicating, collaborating, hanging out, dating, planning, organizing, etc.
So how do the social networks of today fit into this framework?
According to Mark Zuckerberg, Facebook is "a social utility that lets people share information with the people in their world quickly and efficiently." In other words, the core competency of Facebook is strengthening existing relationships through information sharing.
The purpose of MySpace, like Facebook, is also primarily to strengthen existing relationships between friends through information sharing. The main difference between MySpace and Facebook is what bits of information get emphasized. For example, MySpace uses the musical tastes of others to facilitate the discovery of new music.
And similarly, the purpose LinkedIn is to connect friends-of-friends for the purpose of networking.
Each of these sites facilitates only a tiny fraction of possible human interaction. Which is why creating "Facebook but with emoticons!" or "MySpace but for for the Amish!" is so silly. Facebook and MySpace already do a great job in their respective niches, and it would be very difficult to unseat them. And since there is so much potential in the yet unexplored possibility space, it makes no sense to even try.
There is a lesson here for venture capitalists as well. Sure, the vast majority of pitches for new social networking sites may be terrible. But that doesn't mean the possibilities for creating value have been exhausted. The next two guys to show up on your doorstep just might be a little less dumb than you think.