Bubble 2.0


Overfunding of social media startups is natural, in that a healthy market economy always experiences overshoots in optimism and pessimism (which is a side-effect of responsiveness to innovation and novelty).

 

Social media applications rely on a critical mass audience. Not just a static audience, but one willing to generate content that other members find interesting. Social media web sites cannot exist in a vacuum. Like cities, they need in roads from exisitng high-traffic areas. For this reason social media websites will fail without a critical mass audience to drive more new members to the site. There is only so much space in the social media structure, since everyone wants to have access to everyone else. It is arguable that niche markets exist and that smaller players will always have a spot to grow and develop via specialization, however the open APIs and community generation tools of existing sites like Facebook have created a meta social network, in which members can create their own subsites with full access to the community.

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