VC confab: Please, no more social networks

Venture capitalists seem to agree that the Internet is maxed out when it comes to new niche communities for CEOs, coffee enthusiasts, or cats.

Stefanie Olsen Staff writer, CNET News
Stefanie Olsen covers technology and science.
Stefanie Olsen
3 min read

REDWOOD CITY, Calif.--The consensus here at the Dow Jones Web Ventures conference this week seems to be that the world doesn't need another social network.

That's considering that the advertising model for even the largest social networks like Facebook has yet to fall into place--despite that company's projected $15 billion valuation. Or that sites supported only by advertising will get squeezed in a down economy and that venture capital is cooling for Web 2.0 startups. Or, more likely, that some audiences--like CEOs or cat lovers--simply don't need their own social networks.

"If I see another business plan for a social network, I might blow my brains out," Barry Schuler, managing director of Draper Fisher Jurvetson, said during a panel discussion this week.

"It seems like 2000: Everything is the next big social network, even though no one has figured out a real business plan for that yet."

Despite his sentiment, social networks keep on coming. On Wednesday, for example, Starbucks came out with Mystarbucksidea.com, a hub for sharing ideas about coffee. The two-day confab featured similarly narrow ideas--some good, some bad. (You decide.) There was DanceJam, for dance enthusiasts; DietTV for dieters; Ideeli for luxury shopping deals; Mixaloo for music fans; Patientslikeme for the terminally ill; and Respectance, an "emo-social networking site" that lets people pay respects via video to their loved ones.

Of course, these sites and others are looking for the kind of popularity and payout that recently came to Bebo, which AOL acquiredfor $850 million.

And VCs here certainly have big investments in these or like companies--DFJ is invested in CafeMom, a social network for moms, and Jaxtr, voice technology for social networks. But the popular opinion among executives--though not among startups--is that the market is saturated.

Will Price, former partner at Hummer Winblad, now CEO at Widgetbox, called it a "consumer fatigue issue." People may get burned out on recreating their social life on a new network, he said. Also, marketers may be ignoring existing social networks to create their own niche networks--to their detriment.

Dave Hornik, general partner with August Capital, countered that when people are given the right reason, they will join a new social network. Yelp, which recently raised $15 million in a fourth round of funding, has managed to lure new members by offering consumer food reviews, he said.

Still, Price said he's seen social networks for green living, glamour and sports; and his thinking is that it's a tough business. It can be expensive, for example, to aggregate publishers' content and hire a sales staff to pitch marketers. "It's hard to scale. And I would be more concerned about semantic Web technology that could do something less human-intensive," he said.

One of the biggest problems facing social networks is to recreate the kind of powerful advertising network that Google has with its targeted search ads. Facebook tried its hand at a system that matches people's consumer behaviors on the Web with ads in the online community. But it scaled back on that program, called Beacon, because of consumer privacy concerns.

Tim Kendall, a product manager for Facebook who spoke Thursday at the conference, said that despite that misstep, advertising will eventually be social. Facebook ads, for example, can pop up when a friend signs up for a new application or becomes a fan of a band, say Dave Matthews. As a Facebook user, you might see a Tickets.com ad for a Dave Matthews concert.

"Advertising will be about leveraging the true actions that your friends take and using that as the advertisement," Kendall said. He added later the Facebook will also work on better options for brand advertising. "We'll derive a meaningful set of revenue from brand ads. We need to address that market, too."

Still, for any other small potato in the business, VCs are buying it.

"There's an assumption that the phenomenon that occurred with Facebook and the young generation is applicable against anything," said DFJ's Schuler. "Not to pick on anyone, but I'm not sure ExpertCEO will engage in the same way that others do like Facebook."