Government Technology

Assessing the Value of Social Networking in an Over-Heated Market


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January 13, 2008 By

2007 went out with signs that the first wave of social networking excitement reached what Wall Street would call a market top. 

To recap, Microsoft paid $240 million for a 1.6 percent equity stake in Facebook that included an exclusive ad deal. The move effectively boosted Facebook's market valuation to $15 billion and made News Corp.'s $580 million purchase of MySpace in 2005 look like a bargain. Google responded by announcing OpenSocial, a social networking platform that lets third-party developers create widgets to use personal data and profile connections across social networking sites (inadvertently fueling calls for the FTC to create a Do Not Track registry).

The invitation was open to all comers - including Google's own Orkut, LinkedIn, Ning, Nexo, Plaxo and Twango, and even MySpace (which, while still leading in traffic and membership, struggled with its own platform strategy and was surpassed in the battle for buzz).

Perhaps you've already made up your mind about social networking, either by opening accounts on these services or restricting - or carefully monitoring - your kids' online socializing. To its credit, the National Electronic Commerce Coordinating Council held a symposium to explore what social networking means to the act of governing. The result is a new report, Government in the Age of YouTube: Implications of Internet Social Networks to Government, which is cautiously optimistic in content and cautious in tone. (See Government Should Use YouTube, Second Life and Other Web 2.0 Sites for more on the report.)

As social networking ascended to the "peak of inflated expectations"- Gartner's language for another flavor of a market top - what has been largely overlooked is that social networking DNA contradicts the long-established "network effect," which posits that a network's value rises with the number of users. Social networks actually lose value when they grow too large - the promised intimacy succumbs to spam-level volumes of "friend requests."


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