Yesterday Google announced that OpenSocial now reaches 350 million users, suggesting that the competition is still on to become the largest social platform. The competition may be slowing though as Stefanie Olsen suggested this morning. Rather than a large influx of new competitors, the “buzz has turned to a worrisome hush” and venture capital funds are drying up.
I’m not so sure that the lack of venture funding for Facebook application companies is big news. Technically social applications are not the same as widgets but that doesn’t really matter to marketers who are spending money in the space because they don’t know what any of this means. It’s now become the job of the sales and business development teams to sell the idea to marketers and advertisers.
There is also a lack of advertiser education and as such, even the large companies are finding it more challenging to extract a lot of revenue out of advertisers. This doesn’t mean that the interest in the area has died, it just means that it’s time to get back to basics and figure out how to generate substantial revenue (this was one of the primary drivers behind the launch of Social Ad Summit).
The biggest challenge for the space? Even the venture capitalists investing in these companies aren’t so sure. As Navin Chadda, “a venture capitalist with the Mayfield Fund, which invested in Slide and widget distribution network Gigya” said, “Can one application company on Facebook build a few-hundred-million-dollar business? I’m personally skeptical.”
Some of these companies have have more eyeballs looking at their products than television channels have but the advertising dollars simply aren’t stacking up. It’s time for the industry to get back to basics and figure out how to start extracting the big dollars.