Friday, May 18, 2007

Will Vertical Social Networks Succeed, or, Is Goutster a big deal?

This is a response to Big or Bullshit: Vertical Social Networks, posted by David Cohen's to his blog, Colorado Startups. Cohen examines vertical social networking, and concludes:
"I think that the vertical social networks will proliferate and become a useful part of the web. But in terms of their potential as an investment - I guess I’ll have to call Bullshit. Look to the aggregators and the toolsets that emerge around identity - I think that will be Big."
As founder of LibraryThing, I always chafe at the idea that books are a "vertical." I mean, books are the world. Connecting around books isn't some marginal activity—it's practically civilization itself!* But I guess that marks me as a vertical-dweller. Maybe the running people think that books are a luxury, and running the center of life—the Philistines! At least you didn't compare us to DwarfDate or that network for people who really enjoy sneakers.

I think we'll find some verticals are a lot more promising than others. A social network for sufferers of gout or mesothelioma—to take the most expensive Adwords term—could be quite profitable.** The network for sufferers of Guinea Worm will not. The situation may end up resembling specialized periodicals. Mainstream magazines go up and down; it's vicious market. But there are a lot of tiny publications we've never heard of that chug along year after year making a killing in smaller, profitable spaces.

But I don't think we know all the ways social networks can make money. There are surprises in store. You're assuming the center is advertising.*** But LibraryThing, for example, HAS no advertising. Not only do we offer a service good enough to charge top users, but the data members add--distilled statistically into recommendations and so forth--has a lot of value. A better recommendation algorithm is a force-multiplier for ecommerce. And just a few days we announced our first library license, putting LibraryThing in the online catalog. Libraries aren't rich, but they spend a lot on technology. And there are more libraries in the United States than McDonalds. I don't know how this applies to other verticals, but I expect advertising is just the beginning. (And for the sake of our exhausted eyeballs, I hope the ads go away.)

I can't get behind your enthusiasm for social network aggregators. The verticals are about passion. The Buzz page on LibraryThing is a florilegium of love letters. As a book guy, I understand this. I'd feel the same way if LibraryThing weren't my baby. But I've never gotten excited about belonging to a social-networking aggregator. I don't know anyone who has. There's probably a business there, but a low-margin one, like providing free RSS aggregators. And, by definition, you can't have as much lock-in when you're not the thing they really want.

I wonder if the interest in aggregators isn't just a repeat of a familiar pattern, when the internet discovers something outstanding and fun, and VCs later decide that, although fun doesn't pay, a boring version will rake in the dough. Remember when "business-to-business" ecommerce was going to save the dot-com bubble?

Even if verticals like LibraryThing's aren't going to make for "big exits" and--as I also believe—most verticals don't need VC-level funding****, there's something going on here that deserves VC attention. Vertical social networks aren't some fad, but the virtual life of something even deeper than books—the need to connect with like-minded people. If, as Warren Buffet has said, the airplane industry--taken as a whole over the last 100 years--hasn't made a profit, it still changed the world. A changed world is a world with opportunities.

*Exempting Last.fm is particularly galling. The book industry is four times larger than the music industry! Okay, I made that statistic up. It's probably the reverse. We need to hire a marketing person who can look that stuff up.
**The gout network would carry a lot of sherry and madeira ads, of course.
***And don't get me started on affiliate revenue.
****There's also a neat paradox with "exits." The most successful verticals will be, like LibraryThing, created by people more interested in the vertical than getting "out" of it. That's one reason LibraryThing didn't take VC money, so I'd be the one who went for an exit deal, not you.

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12 Comments:

Blogger Zac said...

Let Google search be your marketing research team:

http://www.publishers.org/industry/index.cfm

http://www.riaa.com/news/newsletter/033106.asp

Looks like the book industry is about twice as large as the music industry (USA 2005 numbers: 25.1 billion vs 12.3 billion). If you don't count the educational publications (textbooks etc, 9.9 billion), it's a much smaller margin, but books are still bigger.

5/19/2007 1:09 AM  
Blogger RJO said...

One of the first (the first?) big social networking sites on the web, one that never seems to get mentioned, is photo.net. It was founded in 1993, when the web was really in its infancy, and it has more than 100,000 members and is still going strong. Photo.net pre-dated PHP and MySQL, it predated blogs and Flickr, it predated Google. The community-building software that ran it initially (I don't know what it uses now) was all developed by Philip Greenspun in the early 1990s, and he gave away most of the collaboration tools for free (I used a number of them for years). He tried to set up a company to commercialize this software on a large scale, it was bought by some VCs, and they destroyed the whole thing within a year. But photo.net and a few other sites are the legacy; people should know more about them, because they represent a whole prior generation to all the Web 2.0 stuff people talk about today (most of which was already described in Greenspun's book from the early 90s).

5/19/2007 1:14 AM  
Blogger Tim said...

Why do that, when LibraryThing members will do it for me? ;)

The educational market is rather separate. I used to be in it, at Houghton Mifflin. Our keys wouldn't even work on the Trade and Reference floor although, as everyone knew, Trade and Reference is cream for HMCo; K-6 makes the cash...

5/19/2007 1:16 AM  
Blogger Tim said...

Yeah, I listened to a Podcast—IT conversations or someone—with him.

5/19/2007 1:17 AM  
Anonymous BTRIPP said...

Tim, within the first footnote, states:
"We need to hire a marketing person who can look that stuff up."

Uh, is telecommuting from Chicago on the table?

heh ...

5/19/2007 10:41 AM  
Anonymous jite said...

thanks

take care
www.sumitkar.org

5/19/2007 2:07 PM  
Anonymous nilen said...

well,google search is good if properly used foo Market research.

take care

5/19/2007 2:08 PM  
Anonymous David Cohen said...

Interesting perspectives.

Please keep in mind I'm not saying that vertical social networks are bullshit (in fact I said quite the reverse). I just think that's true in terms of an investment (I'm not a VC by the way). I'm actually a LibraryThing user myself.

Although I agree that perhaps "books" was not a great example of something not to be exempted, I think the observation that the book industry is larger than the music industry misses the point. The point is that nearly everyone wants to "listen to music" while not everyone wants to "catalog all their books and discover new ones". LibraryThing, Shelfari, et al are not "delivering books" like last.fm delivers music. So this not exactly an apples to apples comparison. Still, point taken, books would perhaps be too horizontal to really consider "vertical".

Finally, I blog to learn. So it's nice to see how others thing of this, even if they are clearly biased. ;-)

Good luck with LibraryThing, I am excited to see how it evolves.

5/19/2007 4:39 PM  
Blogger Tim said...

All good points. Sorry if I sounded confrontational. I blog to learn too. I tread heavily, perhaps.

Your point about books is true, but I think the comparandum isn't deliver vs. catalog but deliver vs. "relate." Cataloging on LT can be just a leg-up on the conversation. I *do* think the desire to communicate—about books, movies, music, etc.—is a bottomless thing. And if writing about music is like dancing about architecture, writing about books isn't :)

Anyway, we're going to be "delivering" some books soon enough!

5/19/2007 4:49 PM  
Blogger waltc said...

Re your first footnote: According to Book Industry Study Group figures, the actual U.S. book market is about twice as big as AAP's numbers (which ignore most small publishers--of which there are tens of thousands). But RIAA's numbers probably ignore independent record labels too. So I'd say "somewhere between 2 and 4 times as large" is about right for books vs. records.

5/19/2007 5:33 PM  
Blogger Barbara said...

... and instead of hiring someone, you can always call or get on chat with a librarian...

5/19/2007 9:04 PM  
Anonymous Ron said...

You make valid points when you talk about the need to connect with others. It's been virtually ignored..by 'big box' sites and there is still a huge gap of niches that could be filled.

7/05/2007 1:37 PM  

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