The Expansion of Social Networks

Inventing new software for enterprises is really hard. Selling it to them is nearly impossible.

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Fast forward to 2007 and social startups are faced with much the same problem. A handful of them succeeded at building the modern version of the channel -- a large audience of frequent users. But is a large audience enough? Should the startup perfect what they have or should they leap into another vertical? And if the answer is yes, how far should the service extend? In this post we will take a closer look at growing social networks and consider how they are looking at vertical expansion.

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we define a generic network as one that exists primarily to keep in touch and a specialized network is one where people are brought together based on the specific common interest

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The main advantage of a specialized network is that it can offer a better user experience. Because of its specialty its user interface can be more focused and rich.

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The disadvantage of specialized networks is that they are somewhat limited to their specialty. It is not a set in stone limitation as we will discuss below, but it is a limitation. Users perceive specialized networks as such and rolling out completely different functionality can be surprising and quite risky. On the other hand, generic social networks such as Facebook have much more flexibility in the set of features that they can build. In fact, adding a specialty is likely to be perceived positively by most users because they come to generic networks with a "one-stop-shop" mentality.

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The disadvantage of specialized networks is that they are somewhat limited to their specialty. It is not a set in stone limitation as we will discuss below, but it is a limitation. Users perceive specialized networks as such and rolling out completely different functionality can be surprising and quite risky. On the other hand, generic social networks such as Facebook have much more flexibility in the set of features that they can build. In fact, adding a specialty is likely to be perceived positively by most users because they come to generic networks with a "one-stop-shop" mentality.

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However unsuccessful a single integration may be, we know that a successful integration can be potentially valuable for both the expansion and retention of an existing user base.

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The single most important metric for the social networks looking at a vertical is monetization. Over the last few years these sites mastered the eyeballs game and they now need to demonstrate value by turning those eyeballs into dollars. This can be done in a few ways, though the major ones are advertising and affiliate programs. Looking at the diagram above, we see for example, that social bookmarking and social news verticals could be interesting plays. Both of these do not have much technical complexity and have straightforward, but perhaps limited, monetization in the form of text ads.

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Last.fm and other music social networks are difficult to replicate because of their more technical feature set. However, since music market is huge, we can expect that more generic social networks would be considering it.

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As the competition between generic social networks heats up and the pressure to monetize the audience increases we are likely to see these sites add support for more verticals. Despite the fact that they are not going to be able to offer the same rich set of features that specialized networks are can offer their die hard fans, the expansion is threatening. The generic social networks have these advantages:

They have a bigger audience to play with
They can get away with 80% of features
They have the luxury to try different things and "see what sticks"

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As the competition between generic social networks heats up and the pressure to monetize the audience increases we are likely to see these sites add support for more verticals. Despite the fact that they are not going to be able to offer the same rich set of features that specialized networks are can offer their die hard fans, the expansion is threatening. The generic social networks have these advantages:

They have a bigger audience to play with
They can get away with 80% of features
They have the luxury to try different things and "see what sticks"

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bringing many specialty networks together and pulling them towards a generic play that drives the combined service bundle up the curve towards your sweet spot

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