The health of the social media scene

With the rest of the economy seemingly disintegrating before our eyes at a rate few would have conceived of this time last year, it’s no wonder that danger signs are appearing online and even in social media.

There are two camps of people: those who believe that the recession will not touch online business – or maybe even boost it; and those who believe that the same economic storm will lay waste to online business just as ferociously as it’s already doing offline.

Both camps can call on different stories to support their views: online sales were up over Christmas, showing that people are moving online to buy things and that’s why high street retailers like Woolworths are going out of business; but the growth rate was dramatically down on previous years, and there were casualties online too: online electrical goods trader Empire Direct went bust in January seems to show that the medium (online/offline) makes no difference if a sector such as retailing is chronically depressed.

You can argue this week’s story of Twitter raising $20m more funding either way: that it shows that there is money out there to support good businesses despite the credit crunch; or else it shows that even the “hottest”, fastest growing, most publicised online service of recent months is struggling even to scrape together a pitifully small smount to stop it from going out of business. (How they wish they’d taken that Facebook buy-out offer now, huh?)

The latest rumour is that it appears AOL, once the biggest player in the online sphere, seems set to dump the youth-orientated Bebo social media network. This is one of the biggest social media networks around – not of the order of MySpace, let alone Facebook, but still an important player and seemingly very successful in appealing to advertisers who want to target the youth market. But with advertising drying up on all fronts it seems AOL need out of the deal, which cost them $850m in cash less than one year ago in one of the few Web 2.0 acquisitions we’ve seen thus far, and which now – if reports are to be believed – will be lucky to scrap a quarter of that ($200m) in 2009.

You could argue – with justification – that this is more a reflection on AOL’s precipitous fall from grace (remember when it was big enough to buy Time-Warner? Feels like a completely different epoch, doesn’t it?) and you’d be right. But it also bodes badly for any Web 2.0 business starved of advertising revenue looking to any angel company for a buy-out and a big (or even modest) payday.

So if you can’t get loans without a high price, and you can’t get bought out (unless it’s a deal like Movable Type owner Six Apart made to buy up faltering micro-blogging company Pownce to immediately shut it down as it did late last year) then things can’t be good out there. One by one we could well see the social media landmarks falter and possibly fall. And then all those nice toys we get to play with – from WordPress to Twitter, Flickr (whose owner Yahoo! just posted a $303m loss for the last quarter of 2008 ) to Wikipedia (only recently saved by a massive fund-raising drive), from Bebo to MySpace and even Facebook – will disappear without a trace.

Maybe this will be a case of Schumpeter’s “creative destruction” and leave the ground clear for a thousand new businesses to bloom post-recession. Or maybe it will just leave a barran wasteland and a generation of entrepreneurs too scared to try anything. Either way, we need to be sure that we’re not complacent about the challenges and difficulties we all face – online as well as off – in 2009 and beyond.

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  1. No, not Flickr. Can’t live without Flickr.




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