How 2009 is going to change the social media landscape
Year 2009 has unfolded as gloomy as ever, with banks on free-fall, company profits shrinking rapidly, and job losses mounting. Basically, the sentiment can be summarized with the following couple of Tweets:
So what's up for the social media startups? Ad revenue is falling rapidly, funding has dried up. Companies are reducing workforce to gain runway. But there are good news coming behind this overwhelmingly gloomy picture. First a little reminder: the plentifully available funding was basically hurting whole industries through enabling too lavish use of FREE as a business model. Richly funded companies had enough money not to care about the business model, and they could keep the investors happy by showing growing traffic numbers. Now people have realized that traffic does not necessarily equal money. If the revenue per user is lower than infrastructure cost, growing traffic will cause bigger losses. Easy math, right? When did VCs forget this?
Now to the good news. There is no funding available for broken or non-existent business models. This means that companies who are building serious, long-term, profitable business can exist even in the market of social media without being crushed by people offering everything free, paid for by the VCs. Companies who are in for the long term will also be again able to hire employees with proposals that require some REAL work, not hanging around the office parties with beer bottles and free gourmet food. More and more of us have to earn our income through excellent service of the customer. It is sobering, if not humbling - but then, it is SUSTAINABLE.
So will we lose our abundance of great services for free? I don't think so. Services that are not focused on mass-market or not gaining traction in the mainstream will have to build in paid business models, while as mainstream services can make their income through advertising. Sure, we will definitely have less options, but there will still be way more services available and innovative ideas coming than any of us can ever use. What's wrong with that?
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