In a tough economy, jumping on the bandwagon may be jumping into an early grave. Take a look at which new media companies are most likely to outlive the competition.
Experts say that history is bound to repeat itself. Will that hold true for Web 2.0?
The late 90s brought a variety of new online marketing platforms, with lots of over-capitalized players chasing the same few ad dollars that were making the leap online. From portals to search engines to travel sites, auto sites, job boards, online groceries, book stores and auction sites, there was no shortage of me-too companies permeating every new category on the web. Survival-of-the-fittest quickly kicked in, and audiences put their loyalty in one or two players in each platform. Inevitably, the advertising dollars quickly followed, leaving those me-too companies with little more than a headstone with their logo on it.
And now we are entering another cycle of rough economic times, where natural selection will have its say and the grim reaper will take the weakest players to meet the proverbial graveyard in the sky. In each sector, only one or two companies will thrive and survive. Social networks, video sites and music companies are all great examples of new categories that have experienced the me-too growth and support of VCs during the last three years. These are the sectors that will see lots of companies disappear in the next 12 to 18 months.
It is important to be able to determine which companies will survive, and why. As advertising budgets get smaller, advertisers need to be smarter about where they are spending their dollars. Spending money on a site that may not survive the economic turbulence is a mistake you want to avoid. Now is the time to focus on sites that receive a majority of the traffic in their segment and sites that are positioned to be around for the long haul. Let's take a look at each of the sectors and identify which one or two companies are poised for growth while the shakeout in each sector occurs.
Social networks
When you think about Web 2.0, you think about social networks. MySpace created early buzz in the space, followed by the growth and emergence of Facebook. Because of the success of MySpace and Facebook, venture capitalists started pouring money into social networks. If you visit Wikipedia and search for a list of social networks, more than 125 companies will be indentified. With so many social networks to choose from, advertisers are surely overwhelmed.
Advertisers' returns on social networks have been below industry average, and with venture capitalists tightening their spending, many of the funded social networks will disappear. For example, Hi5, the world third's largest social network, has seen its growth slowed, and sites like Bebo and Friendster have stayed flat for the second half of 2008.
On the other hand, LinkedIn is garnering the attention of advertisers. LinkedIn has been on the rise for the past 24 months, and investors have shown their support with two major rounds of funding in 2008. With steady growth and a strong demographic for advertisers, LinkedIn is positioned well for the downturn, and advertisers should continue to find its audience attractive.