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Does Any of This Sound Familiar?

Silicon Valley venture capitalists are pouring money into a new generation of companies that will ride the social networking wave. Am I the only one having flashbacks?

Yesterday's Wall Street Journal featured an article about how Silicon Valley VCs are investing in “companies that hope to unshackle social networking from personal computers — and shift it to the cellphone.”

Is social networking shackled? According to the WSJ :

    On Thursday, Color Labs Inc., a phone-based social network founded by veteran entrepreneur Bill Nguyen, is opening its doors. The Palo Alto, Calif., start-up recently secured $41 million from top venture-capital firms including Sequoia Capital even before the company's iPhone and Android apps were ready to debut.

    Color, a new app, launched Thursday with the goal of re-inventing the idea of social networking for the smartphone era. Now the question is whether it's worth the $41 million in funding—and whether users are ready for its notion of privacy.

Does any of this sound familiar? Are we so far from the tech bubble that we've forgotten how the Internet was going to reinvent the notion of pretty much everything?

    The idea behind Color is that a phone's location-sensing abilities can build a user's social network for them, allowing users to share photos, video and messages based simply on the people they're physically near. The company's view on privacy is that everything in the service is public—allowing users who don't yet know each other to peer into each other's lives.

    Color is just one of a growing number of social start-ups betting on smartphones that are now attracting a venture-funding rush. Many of the companies feature photo taking and sharing at their core, such as Path Inc., founded by former Facebook executive Dave Morin. It received $8.5 million last month from Kleiner Perkins Caufield & Byers and Index Ventures. It has also had conversations with Google Inc. about a buyout, according to a person briefed on the discussions. Google declined to comment.

My problem with this is multifold (aside from the idea of sharing photos with the stranger standing next to me). Back in the heyday of the Internet, anyone with a PC could start up an Internet business. The same appears to be true now for apps. The Internet was going to revolutionize the way business was conducted; social networking is poised to do that. Venture capital investments reached their all-time peak in 1999; a venture-funding “rush” is now on, according to the WSJ . And the issue with privacy… enough said.

I can only speak for the electronics supply chain industry, but in the pre-bubble days, we'd get two to three announcements per day of a new Website, startup, or auction site that was going to change the world. How many days have gone by this week without a new app or smartphone hitting the market? The market is quickly becoming saturated with products for the Great Unknown — the social network.

Like the Internet, the social network is going to change things. It already has. But how? And why? It has taken a decade to even get a handle on the Web's role in commerce — and it has put other businesses, such as publishing, on tenuous ground. Once again, it seems as if venture investment is going toward a business that relies on “views” as a measuring stick. Google and Facebook remain the exceptions in a dotcom market that was flooded with similar offerings. Will this time be any different?

10 comments on “Does Any of This Sound Familiar?

  1. t.alex
    March 25, 2011

    Social networking and all the apps surrounding it are really overhyped. Aren't anyone get bored with it someday, sooner or later?

  2. AnalyzeThis
    March 25, 2011

    I agree, this all seems very familiar.

    I read about the Color story earlier. I can't believe they got that much funding for such a questionable, unproven concept. Yes, I understand that they apparently have some cool technology… but it sounds to me like it's the type of thing that only a very small amount of people would use for any extended period of time. Maybe if you were an aspiring photographer in Brooklyn, it would be a cool thing to use for a couple of months. But for your average person? Maybe you'd check it out just to see how it worked, but it seems like the type of thing you'd quickly forget about and stop using.

    And I'm sure shortly after launch there will be some story about a creepy person using Color to share obscene photos and/or stalk people.

    You said it, “Back in the heyday of the Internet, anyone with a PC could start up an Internet business. The same appears to be true now for apps.” I think that's a perfect analogy.

    But I wonder what has a higher failure rate? Social media/smartphone app start-ups… or restaurants?

    This isn't the only industry where the success rate is low. Maybe that's how it'll always be. I certainly don't think this time will be any different.

  3. Tim Votapka
    March 25, 2011

    Sure does sound familiar. If anyone wants another take on the social networking scene, I found a great interview Charlie Rose did back in January with Twitter founder Jack Dorsey. Check it out : http://www.charlierose.com/search/?text=twitter

     

  4. Barbara Jorgensen
    March 25, 2011

    DennisQ–good point about restraunts–didn't think about that! The more I thought about Color's niche, the more perplexed I got. If you are on a NYC subway platform, do you really want your social network distributed for you by your cell phone based on the proximity of people also on cellphones? Not me…

     

  5. Wale Bakare
    March 25, 2011

    Majority of people like to be on the bandwagon. Facebook has done pretty well in social network scene as well as Google who distinctly has special apps making search easy on the net.  Indeed, they will continue to be ahead of other new social network websites.

    @Barbara “How many days have gone by this week without a new app or smartphone hitting the market? The market is quickly becoming saturated with products for the Great Unknown — the social network

    They are many new apps trying to make something similar or a bit unique to Facebook and Google; their success and magics are overshadowing other new social network inclined apps. In my opinion Facebook and Google will be ahead until people get bored.

  6. prabhakar_deosthali
    March 26, 2011

    It is a common knowledge that more than 50% of users on any social networking site are one time users. They accept somebody's invitation to join and may visit the site often initially and later may just forget that they ever signed in on that site. Though the site may claim to have so many millions of users signed in, only a fraction of these are really active and out of these active users only a fraction use this medium for some meaningful purpose. So any new developments and offerings in this field , in my opinion have only a gimmick value.

  7. jbond
    March 27, 2011

    I find it rather humorous that every day I read or hear something about the next great app for any of the major platforms that’s going to change the world. I myself have a few apps that I find rather helpful. I also find plenty of them useless. These small startups or apps without significant capital investment should be fine if their sales or installs don't take off. What about the ones with millions of dollars invested? Everybody is trying to become the next Facebook. It would seem like many of these apps are headed for the same fate as the startups from the dot com era.

  8. Kunmi
    March 27, 2011

    The technology has offered us oppportunity to use initiatives to create and effect our environments with new ideas but what makes a differnece is the extent at which it is widely accepted. Facebook for instance is like a jackport in connecting people and enhance socialization. Family tree is like a rocket science when it was freshly introduced to the tech system. More will still flood the market. Some of these innovations are based on fame and strife for fortune

  9. Barbara Jorgensen
    March 28, 2011

    I guess my main concern is we seem to be moving in the direction of an unsustainable business model, as the Internet was in pre-2000. The VC industry was supposed to have learned it lesson, investing in companies with a proven market and a proven track record. It seems VC is latching on once again to a tool–social networking–without knowing what it is going to be used for. So we'll see a few multimillion-dollar success stories, but a lot of failures as well.

  10. SP
    March 31, 2011

    Well social networking is going to be the next revolution in the business like walk man did or DVD player did or for that matter cell phone did. Its what everyone want but is scared on privacy issues. If privacy issues are haldled with utmmost care then there is no limit.

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