So rapid, that some venture capitalists are likening the phenomena to last century’s Internet run-up, with comments like “Does it feel like 1999 again?” Translation: some VCs are jumping on board and investing with the same kind of abandon they had for now-defunct sites like Pets.com. Others are steering clear, dubbing the environment as “bubblesque.”
Many of the sites are based on free services designed to get individuals to network with one another. One person signs up, and then gets others to sign up, who bring in others, etc. It’s viral marketing at its best.
There’s no doubt that the sites are very popular right now, especially with young professionals. Whether a sustainable business model can be built is another issue. According to a spokesperson with Forrester Research:
- “The social networks are great as long as they are small.” But “in order to have a business model, that requires scale, typically. Those two things are inherently in contradiction. It’s a fundamental challenge.”
The unfortunate truth is that most of these sites will not survive in their current forms. There are plenty of businesses making money on the Internet. But Web sites based primarily on providing FREE services typically don’t have long-lived business models. They are going to have to adapt–very quickly–into cash-generating machines that bring in more than they spend if they expect to survive and thrive. Hopefully that’s the lesson we learned from the last Internet bubble.