This is probably not news to the management and investors of most social networks but should serve as additional fodder for those who see an end to the Social Networking/Web 2.0 valuation & funding gravy train.
The Economist article equates social networks to free email such as Hotmail or Google mail and predicts that social networks have quickly come to be an expected and free part of any internet portal. In this context social networks such as LinkedIn and Facebook should not be a destination in themselves, but the components of the social networking sites should be part of a users everyday internet experience.
I agree in that in these trying economic times the advertising model that most if not all of these social networks are built upon is not a sustaining business model. Advertising revenue for established media companies is and has always been cyclical in nature and even with the lower cash burn rates that today’s Web 2.0 companies have compared to their Web 1.0 predecessors, wont provide enough recurring revenue to stay in business after the venture funds runs out.
Venture funding in itself is a bit faddish and indications are that Social Networks/Web 2.0 are no longer the VC flavor of the month as VC’s move to investing in Green/Clean Energy and Renewable Technologies.
Will be interesting to see if some of the venture funding that was wildly invested in Consumer Social Networks/Web 2.0 will now invest in Enterprise and Enterprise 2.0 Software firms. Most of these firms actually have a real revenue producing business model and are; in the case of Enterprise 2.0 software firms, in the process of rearchitecting packaged solutions to Software as A Service.