CandidCapital

Social networks have acquired a momentum reminiscent of the height of the dot.com boom. So much so that two venture funds have been set up to invest in Facebook applications. Do these offer substantial new business opportunities or are they an excuse for a new bout of investors' self-delusion?

Earlier in the summer, having attended Library House's excellent Essential Web 07 conference, I blogged about how the Web 2.0 phenomenon is showing some of the signs of the dot.com fever that raged in 1998/99.

Web 2.0 and TechCrunch
Despite the sub-prime mortgage crisis, both in the USA and in the UK, things don't seem to be cooling. David Hornick, in his addictive VentureBlog and its companion podcast VentureCast, chronicles the phenomenen from the cockpit of Silicon Valley. His blog is a roll-call of "new, new things" and the entrepreneurs looking to exploit them - all of which is garnered from his role as general partner at August Capital a technology venture capital firm.

Listening to VentureCast026, which was about the TechCrunch 2007 summer party, I was struck by the introversion and self-referencing among the people attending this ultimate insiders party. TechCrunch is described by the FT as:

"An online blog-cum-news service, it has become the place to be seen for a new wave of internet start-ups clamouring for the oxygen of publicity".

It went on to say, about Mike Arrington (TechCrunch founder) and the 2006 TechCrunch summer party:

"Everyone claims to know Mike, whose role as an important greaser-of-wheels was confirmed by a TechCrunch networking party last summer that had to be limited to 800 guests. "We could have had 3,000," he says. His scoop weeks later that Google was about to buy YouTube sealed the matter."

Virtual Hype?
One of the hot topics discussed by the Web 2.0 glitterati at the party was the explosion of applications built on the Facebook development platform, launched in August last year and open to third party developers since May. Looking at the Facebook website today, it had 6,321 applications listed, from the trivial (not to mention bizarre - such as Pet Sabotage) to the seriously commercial (such as Lonely Planet Trips). The extraodinary level of interest in Facebook applications justified a dedicated developers conference in San Francisco in May and has led to two dedicated venture capital funds (Appfactory and the Altura Ventures Facebook Applications 1 Fund). Unsurprisingly, the two funds have their own Facebook group.

Of course, the 'world within a world' characteristics of Facebook are nothing compared to online virtual worlds such as Second Life and Active Worlds which submerge their users in an alternative existence that is limited only by their imagination. So real are these 'metaverses' to their users that they have spawned their own dollar millionaires from trading activity within the virtual world, most notably Ailin Graef whose Second Life avatar (in-world personality) Anshe Chung allegedly generated her $1,000,000 from a $10 investment over 30 months.

New Economy?
I don't believe that the virtual worlds offer business opportunities on the scale of the real world web - there simply aren't enough users spending enough dollars for that to happen. But while I'm not yet convinced about the economic case for piling into the start-ups that are building applications for Facebook and, now, MySpace (who announced their own development platform earlier this month), there may be features of these community sites making it worth keeping an open mind. First, they do have large and growing numbers of users (MySpace had 68M unique visitors in September - slightly more than eBay - and Facebook had 31M according to comScore). Secondly, they offer a well-qualified user base (in that profiles contains rich data about users and their aspirations) and a relatively secure environment.

Bay Partners state, in their rationale for setting up AppFactory:

"When Facebook announced its platform, a set of application programming interfaces (APIs) and services that allow outside developers to inject new features and content into the Facebook user experience, Facebook, in essence, became the Social Operating System. Historically, the creation of an operating system, or a platform, has led to a new economy which includes a marketplace of applications."

What struck me immediately was the phrase "new economy" reminiscent of the words amd phrases used so liberally in 1999 - "new paradigm", "disintermediation", "selling the picks and shovels" etc - the challenge is, as then, to distinguish between the hype and the substantial. Plus ca change!

21 October 2007

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