Customer Success Testimonial: Recovery is Everything

Updated Shhh! Can you hear a hiss? That's the sound of naughty facts deflating the social networking balloon a tad.

Whisper it, but numbers from web analytics outfit comScore have confirmed what the chatter in bars and cafes has been saying for months - people are, just, well, bored of social networks.

The story year-on-year is even uglier for social networking advocates. Bebo and MySpace were both well down on the same period in 2006 - Murdoch's site by 24 per cent. Facebook meanwhile chalked up a rise, although way off its mid-2007 hype peak when you couldn't move for zeitgeist-chasing "where's the Facebook angle?" stories in the press and on TV.

You can survey the full numerical horror for youself here at Creative Capital.

That "user engagement" is dropping off (page impression growth is merely slowing) should be of particular concern for the sales people struggling to turn these free services into profit-making businesses. In the age of tabbed browsing, how long people stick around is particularly key for "interactive" sites, where people aren't attracted by useful information, but by time-wasting opportunities.

And as we've noted here before, if the cash isn't raining down on you you need a "phenomenal" growth line to sell credulous reporters and investors. Expansion into non-English speaking countries is viewed as such a panacea for the increasingly obvious slowdown US social networks are suffering (see Facebook's trawl for translation bitches).

The fact is that web users people are just as fickle in Leipzig as they are in London, and it seems to us that a delayed Friends Reunited (remember that?) effect is kicking in.

When Friends Reunited enjoyed its "phenomenal" growth period people would join, log in maybe a dozen times, catch up with those class mates they wanted to, then forget about it.

On Facebook behaviour seems much the same; join, accumulate dozens of semi-friends, spy on a few exes for a bit, play some Scrabulous, get bored, then get on with your life, occasionally dropping in to respond to a message or see some photos that have been posted.

Similarly, once the novelty of MySpace wears off, most people only stop by to check out bands or watch videos.

They've basically developed a way to add a penny-scraping coda to the Friends Reunited pattern, thanks to diversions that have been enabled by broadband. The biggest difference is that Friends Reunited made easy profit because it didn't give all its features away to users for free.

This time around, expect spinners to work on massaging the comScore figures, and happy-clappy bloggers to leap to social networking's defence by claiming the falls are sign of the market maturing, and of fierce competition. They could be right, but it still means that the individual businesses are not the goldmine their greedy backers slavered over.

For example, despite his endearing deployment of rubber sandals in public, Mark Zuckerberg is yet to convince marketeers - the only people who are ever going to pay him for access to Facebook - that the popularity of his site heralds the next 100 years of media.

And the "widget economy", where developers cobble together web applications in the hope of grabbing their own slice of the riches social networking's massive personal data warehouses promised? Well the business model for RockYou pretty much sums it up. The startup, that owns the number three Facebook App "Super Wall", only sells advertising to other Facebook App developers.

Ted Dziuba of the recently-departed, much-missed blog Uncov put it best: "Fuck, this is a pyramid scheme. There is no money input into this system except venture capital.

"I remember a time, long long ago, when tech companies spent their own venture capital on each other, so revenues were all booked from the same small pool of money. Yeah, as I recall, it didn't end well."

We're not suggesting that social networking sites are totally useless or are going to disappear anytime soon (Friends Reunited is still around? Who knew!) - they're a boon for prying journalists and recruiters for sure, and damn it, Scrabble is a good game. But today's shocking confirmation that their "phenomenal" growth isn't impervious to human nature does make the $15bn valuation Microsoft slapped on Facebook when it paid $240m for 1.6 per cent equity seem even more preposterous, if it were possible.

It's an oft-quoted fact among social networking sceptics, but it's worth reminding ourselves for perspective that Ford - y'know, the massive international automotive conglomerate with massive physical assets, customers who stay loyal over decades and truly global reach - is valued at less than $15bn on Wall Street. ®

Update

Details Facebook's financial status have emerged overnight at AllthingsD. The firm's net cash flow was negative $150m in 2007, it's reported.

Customer Success Testimonial: Recovery is Everything