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Networking Overtime
David Teten and Scott Allen
07/01/2004
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Picking Winners
Just as with the dot-com bubble, inevitably many of these
companies will fail. But we also expect that careful investors willing to take
the plunge will see extremely healthy returns. We have seen a number of
companies in this sector with strong business models. Here are some of the
important signs an investor should look for:
Diversified revenue sources.
Past successful online communities have usually been based on a combination of
advertising, sponsorship, premium membership and transactions (e.g. affiliate
links or more direct product sales).
Tight privacy controls and a clean
privacy track record. Spoke Software recently hired a very experienced chief
privacy officer to boost the public’s comfort with its model.
Utilization.
Membership numbers might look impressive, but they are meaningless unless most
of the members participate. How many of a site’s members have visited at least
four times in the last month?
Uniqueness beyond a gimmick. Flickr is a
company trying to build a network around sharing photos. However, most people
who are technologically savvy enough to download digital photos into their
computer are savvy enough to figure out how to upload them into whatever
community they want. Flickr needs much more to differentiate itself from all its
competitors, such as Tribe.net, which lets members maintain a huge photo
gallery. By contrast, a company called Knowmentum is working on integrating
ongoing collaboration for small private groups, which is technologically much
more complex and distinctive. For example, if two people meet on a site and
decide they want to work on a project together, they will want a place to share
files and conduct real-time Web conferences and basic project management.
Knowmentum is working on offering such tools.
David Teten, CEO of Nitron Advisors, and consultant Scott Allen are
co-authors of The Virtual Handshake, a forthcoming book on social software.
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