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December 13, 2005

Don't Just Look Left and Right, But Also Up and Down

I like the quote last week from Fox Interactive Media’s President Ross Levinsohn (via paidcontent.org):

"[ FIM will focus on ] social portals... Why have one portal when we can have 70 million?"

There is a lot of merit to this strategy.

Many of the “Web 2.0 businesses du jour” that are emerging seem too horizontally focused to me – they are really exploring features which should and will be incorporated into more vertically focused applications. A month ago, there was some blogosphere discussion around Metcalfe’s and Reed’s laws which state that the value of a network increased at a non-linear rate with the number of notes in the network (see Fred Wilson, Tom Evslin, and Nivi.)

However, in the long run, the value of the network is not only determined by the number of nodes in it, but in the ability for the network to monetize those nodes.

Thus, it seems to me that in calculating the value of a network, any equation describing it should contain a variable with the monetization rate (or proxied by the value to the user which can be monetized in the future). So while the number of nodes in a network surely is a fundamental (if not the majority, in many cases) driver of value, the value of the network itself to the user is also a very important component to the overall total.

General all-purpose networks work well in many cases and applications (e.g. Skype for voice communication). But deeper vertical-specific social portals have the potential to drive value as well. Take Dogster, a social network for dogs (via Jeff Clavier). At first, the size of the potential audience seems limiting, but my hunch is that the value which individual dog-owners derive from it is substantial, as they are truly passionate about the subject.

Where’s my “social portal” for me as a skier enthusiast? Better yet, where’s the “About.com of social portals?” Or why isn’t About.com more social?

If Fox Interactive Media wants 70M social portals, then Dogster should be one of them. The trick of both entrepreneurs and investors in the space is to find the couple of the 69,999,999 others which fit the calculus of maximizing total value between both the number of nodes and the ability to monetize those nodes.

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