Inventing new software for enterprises is really hard. Selling it to them is nearly impossible. For a startup to break through the thick doors of the enterprise takes years. But even when lady luck smiles on a startup, the joy is short lived. The next morning its back to the daily grind -- being a one product company means that you constantly have to start over selling to a new place.

Back in the old days IBM had perfected the game of not only opening the enterprise channel, but continuously supplying them with new products. Enterprises were offered bundles, end-of-the-year specials, discounts and all manner of tricks that helped keep the channels open.

Fast forward to 2007 and social startups are faced with much the same problem. A handful of them succeeded at building the modern version of the channel -- a large audience of frequent users. But is a large audience enough? Should the startup perfect what they have or should they leap into another vertical? And if the answer is yes, how far should the service extend? In this post we will take a closer look at growing social networks and consider how they are looking at vertical expansion.

Generic Networks vs. Specialized Networks

Before answering the questions posed in the introduction it helps to understand the differences between generic and specialized social networks. For the purpose of this post, we define a generic network as one that exists primarily to keep in touch and a specialized network is one where people are brought together based on the specific common interest. According to this definition Facebook, MySpace, Bebo and even LinkedIn are considered generic social networks. del.icio.us, Flickr, LibraryThing and Flixster, on the other hand, represent specialized networks.

The main advantage of a specialized network is that it can offer a better user experience. Because of its specialty its user interface can be more focused and rich. As an example, consider Flixster. In our recent review we pointed out the impressive set of features for movie fans. Another good example is Last.fm - a popular social music site. Last.fm offers its users an add on to iTunes and other popular music players that automatically captures their music attention data. It then uses sophisticated automation to connect users with similar taste in music. Thus, Last.fm is an example of a specialized social network with not only a rich set of features, but with a notable specialized infrastructure.

The disadvantage of specialized networks is that they are somewhat limited to their specialty. It is not a set in stone limitation as we will discuss below, but it is a limitation. Users perceive specialized networks as such and rolling out completely different functionality can be surprising and quite risky. On the other hand, generic social networks such as Facebook have much more flexibility in the set of features that they can build. In fact, adding a specialty is likely to be perceived positively by most users because they come to generic networks with a "one-stop-shop" mentality.

Generic Networks Adding Specialties

Consider these questions:

• How many Facebook users are also Flickr users?
• Why would a Facebook user also use Flickr?

While we do not know the answer to the first, we can answer the second one. The Facebook user would only use Flickr to share non-Facebook photos. One possible use case is to share photos with family members who are not Facebook members. It is clear from people's profiles, however, that the majority of the Facebook users utilize Facebook's photo sharing capabilities. And taking it a bit further, if students are both busy and lazy the chances that they will use two photo sharing sites is slim. So likely, Facebook wins this faceoff. The same goes for events. Yes, there are other, richer event sites, but again what Facebook has today is good enough for its users.

As another example of a generic network adding a specialty consider MySpace rolling out a rather obvious Digg clone. Here the situation is not quite as clear. First, news is new to the MySpace crowd, which is not really the same audience as on Digg. The jury is still out on this one, but judging by the top headline things are not going that well so far:

The problem with this integration is that it is simply a clone. Plus, it is not integrated into MySpace in a way that people could use. Users are forced to essentially go to a separate site. The feature is not part of the user flow and as a result, MySpace appears not to have properly leveraged their enormous audience. To be successful, the integration needs to be meaningful.

What Expansions Make Sense?

However unsuccessful a single integration may be, we know that a successful integration can be potentially valuable for both the expansion and retention of an existing user base. Lets look at the broader set of opportunities for existing generic social networks:

The single most important metric for the social networks looking at a vertical is monetization. Over the last few years these sites mastered the eyeballs game and they now need to demonstrate value by turning those eyeballs into dollars. This can be done in a few ways, though the major ones are advertising and affiliate programs. Looking at the diagram above, we see for example, that social bookmarking and social news verticals could be interesting plays. Both of these do not have much technical complexity and have straightforward, but perhaps limited, monetization in the form of text ads.

Last.fm and other music social networks are difficult to replicate because of their more technical feature set. However, since music market is huge, we can expect that more generic social networks would be considering it. Clearly MySpace is already there, and has been since day one, but Facebook might still consider launching a wider music play, particularly because of its appeal to students (who are notorious consumers of popular music). Along the same lines, film and book offerings might also make sense from the monetization point of view. Photos and videos are tougher to monetize, but we should expect that generic social networks might get into video sharing as soon as someone figures out profitable and clean way of making money in this vertical.

Conclusion

As the competition between generic social networks heats up and the pressure to monetize the audience increases we are likely to see these sites add support for more verticals. Despite the fact that they are not going to be able to offer the same rich set of features that specialized networks are can offer their die hard fans, the expansion is threatening. The generic social networks have these advantages:

• They have a bigger audience to play with
• They can get away with 80% of features
• They have the luxury to try different things and "see what sticks"

However, adding too many specialties might be bad, because not all of them will be effectively integrated and absorbed (again, see the MySpace News example), and this could turn off regular users of the site. The generic networks need to consider costs, upside, and most importantly, their audience before integrating a particular vertical. The right mix of verticals can lead to faster growth and definitive monetization.

We are already seeing examples of these expansions and more are likely to follow. Which ones? Only the time will tell. Please let us know what you think is likely to happen next.

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# 1

All eyes on the Yahoo Network guys - as they figure out how to tie all of Yahoo’s properties together to provide an integrated – and social - experience across the portfolio. (looking at your curve: bringing many specialty networks together and pulling them towards a generic play that drives the combined service bundle up the curve towards your sweet spot).

The raw material is frankly awesome. Groups, Answers, Flickr, Upcoming, Jumpcut, the list goes on and on and on. Not to mention half a billion users. This will be interesting to watch...

Posted by: tobiaspeggs | April 24, 2007 02:38 PM

# 2

Very good analysis. I have two observations and one question:

Observation 1 - I wonder if besides social networks, startpages like Netvibes and Pageflakes are also very well placed to target the verticals like video and music. Afterall they are growing fast and are also generic in nature. That said, the startpage companies may not be interested because a) they are happy to 'integrate' with the products of specialist networks rather than try to replicate them; and b) they probably wouldn't want to offend the likes of YouTube and risk exclusion - if that is even possible.

Observation 2 - If they are to successfully integrate specialist features, generic networks must do so with their target audiences in mind. For example, I don't know much about the My Space news feature but it would probably be more successful if restricted to news that teens would typically be interested in than if it were a generic news feature.

Question - I am keen to read your thoughts on why the photos vertical is difficult to monetise. I have my opinion but would like to know yours. Perhaps there is an earlier post you can direct me to?

Posted by: IdeaTagger | April 24, 2007 03:38 PM

# 3

@3 I think that monetizing video is not necessarily difficult, but it is not obvious. In TV we know that 15 mins of content swaps for 5 mins of ads. In video there are problems. First there is a fast-forward button unless its proprietary player. Secondly and more importantly, online videos that are shared are short. Having even 1 min ad in 5 min segment is quite demanding.

Alex

Posted by: Alex Iskold | April 24, 2007 04:17 PM

# 4

Thanks Alex but I am interested in your views on monetising photos specifically - not videos.

Posted by: IdeaTagger | April 24, 2007 04:26 PM

# 5

@4 My bad, i thought you are asking about video :). Photos are even more complex. My feeling is the way to monetize them is via a technology that would overlay ads on top of the image. This sounds complicated, but I do not really see any other way.

Alex

Posted by: Alex Iskold | April 24, 2007 05:09 PM

# 6

The issues of monetisation of photographs and Yahoo's extensive list of social servics reminds me of the way in which they integrated Yahoo Shopping into Flickr. A stroke of genius in my opinion and the kind of thinking Yahoo will need to consistently repeat in order to gain real mindshare in this space.

Alex, while we can point to the benefits of a generic social network branching out into verticals, what do you think the risks of alienating those who love the core experience are? MySpace has lost its soul to many of its members because it stretched itself in too many ways.

Posted by: Jamie | April 24, 2007 05:27 PM

# 7

@6 Jamie, certainly this is a challenge. There is likely to be a sweet spot in terms of number of verticals. The key in my opinion is integration in ways that makes sense and adds incremental value.

Alex

Posted by: Alex Iskold | April 24, 2007 05:34 PM

# 8

@Alex #5: Have you checked out http://www.britepic.com/ at all?

Posted by: Josh Catone | April 24, 2007 05:47 PM

# 9

Right on Josh, I could not recall the name, but yes, this is the sort of thing that springs to mind.

Alex

Posted by: Alex Iskold | April 24, 2007 05:52 PM

# 10

I bet next year we will stop talking about technology features of social networks. As in real world, online social networks which are formed around common themes / interest which has emotional connection with large group of people, will prosper.
Like - toastmasters, lions club, book clubs etc.

This can be extended to enterprise, if any company leverages the tool to build social network to which thier prospects and users would connect with emotionally.For example, Nike can build a community of atheletics.

Posted by: Madhu | April 24, 2007 06:56 PM

# 11

Nice analysis.

In my opinion, just like any other industry, social networking sites will either go big or go niche.

Posted by: Exploring Blogosphere | April 24, 2007 10:27 PM

# 12

ok, Alex there is a question... you said adding many specialties might be bad... but what about rolling out a wide media platform (ex: Imeem)... whats the difference in this case? is it that the media platform will fit everyone and the specialties will fit a niche from the network?

Posted by: weblockr | April 24, 2007 10:36 PM

# 13

I don't use all of the specialized networks you mention, but the ones I do use:

Flickr
Last.fm
YouTube
(sometimes) Digg

I don't use these as social networks. Flickr is a system for publishing photos. YouTube is a system for publishing videos. The social aspects are incidental to its general purpose. Same with Digg... most views are on the homepage, which is the same for everybody. The social networking aspect is irrelevant.

Facebook / MySpace are all about friends. I bet nearly all page views on these sites come from friends learning about friends. And I bet the page views on the "specialist" networks have little to do with the social structure.

Sorry for the long post. Here's a summary: what you call specialist social networks are really "user-generated content sites" -- with the emphasis on the content.

Posted by: David | April 25, 2007 01:57 AM

# 14

@12 If they can create consistent holistic user experience that integrates all these, then its fine.

Alex

Posted by: Alex Iskold | April 25, 2007 06:48 AM

# 15

Recently I have had my attention directed towards a MySpace variant called Virb. While essentially fulfilling the same function as MySpace, it has a much cleaner interface and has integrated Flickr galleries as a separate entity to the basic Virb gallery proper, and also comes equipped with a last.fm-esque iTunes add-on that tracks and records your recently played music. So, in essence I think we're already witnessing the beginning of this conglomeration. It will be interesting to see if Virb can halt the MySpace leviathan at all (it really is far superior in pretty much every way), and whether it expands outwards to incorporate del.icio.us or flixster style networks.

Posted by: Luke | April 25, 2007 06:50 AM

# 16

Also, @13: Research on Flickr has found that, outside the upper echelons of users i.e. those marked out as "most interesting" and the like, there is a very strong correlation between "friend" status and photo viewing, with tag-based searching often being only a subsidiary point of the interface. So maybe there isn't such a gap between the generic and specific networks after all

Posted by: Luke | April 25, 2007 06:54 AM

# 17

I have both a facebook and flickr account. I rarely upload photos to facebook because of the compression that they put on the photos. To put it plainly, it makes your photos look like crap. Flickr has a lot better compression and they offer you multiple sizes of the same photo. That would answer the question of "Why would a Facebook user also use Flickr?"

Posted by: Enoch | April 25, 2007 06:54 AM

# 18

I like the news channels of Congoo.com and Google.com better then myspace news....just me.

Posted by: Science News | April 25, 2007 07:25 AM

# 19

Very good article and analysis. It seems that one thing not taken into consideration is how tools like Ning (www.ning.com) will play into the analysis. If you look at the framework and core tools they have provided, one could slam together a social network fairly quickly. Likewise when you add Amazon Web Services to the mix - you begin to see that much of the heavy lifting that the existing social networks had to entail has been made much simpler and a faster route to beta.
It would seem if someone could lock into a new market or vertical quickly and gain customer momentum, which seems to be the key (as opposed to the technology), then the ability monetize the audience really becomes the hard part of business.
Note that I am asking, as opposed to stating. Just trying to pose one question in the analysis I think was missed - how are tools Ning, Amazon, etc. going to impact the expansion of the social networks?

Posted by: Rob Mowery | April 25, 2007 07:29 AM

# 20

I don't think the second group at least will be called social networks for very long. That is, users want the ability to comment and connect around content on every site -- "Social Network" or not. These features will become commonplace on web sites across the 'net. We see it already on the big ones: Amazon, eBay...

Posted by: Craig Ritchie | April 25, 2007 07:57 AM

# 21

My team and I have been quite successful in building and nurturing our social community which would fall under the category of Specialized Networks.

The key ability I see with the Specialize concepts is that we are able to keep a much high focus on the individual users experience which in turn keeps high brand loyalty. Our user community continually gives us feedback and it allows our small team to be innovative by delivering the exact content they want. We are a "Mom and Pop" and able to give our community "Mom and Pop" service. Conversely, generic networks allow you to have a higher usership but we definitely believe loyalty and "site buy-in" isn't their.

On Rob's comment on Ning and Amazon impact on the expansion of social networks:

I believe that the more players in the game the better. Their are many demographics in non-internet market that don't even know the existence of Social communities in the web. My mother consistently sends me Amazon lists from recommendations she gets when buying things online. She knows of Amazon suggestions and review tools but hasn't realized it's a social network. She's a demographic that may never user Facebook (but she does use FriendsEAT). So I've always believed the more players in the game allows for more demographics which in turn creates an "up-tick" in quality of all services.

Posted by: Antonio Evans | April 25, 2007 08:29 AM

# 22

This is a great article. Here at NetModular (http://netmodular.com/) we've been building focused social networking or Blogworking sites for business for around 7 years. After our first 100 sites we began to realize that there is truly an infinite number of brands that need more interactive publishing and member interaction. From Trade Events to Magazines, to TV and even Radio stations, letting people interact in an authentic way using your own brand is key. No magazine we've spoken to wants to be part of myspace or some other generic social network. The features should be as standard as a steering wheel in a car, the brand and purpose should be like a magazine and reach a specific audience regarding a specific subject!

Posted by: Jesse | April 25, 2007 08:47 AM

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