Yesterday, I attended the MIT/Stanford Vlab event on Social Networking and Business Models. I didn't take notes, but Stewart Butterfield has a great writeup on the event which captures the general atmosphere.

Although the event was entertaining, I didn't feel that the panelists provided much insight on business models for social networks. Any attempt by Tony Perkins to really dig into the details was met with a flip response (mostly from Jonathan Abrams, Founder and CEO Friendster), or a generic response about how creating value will lead to paying subscribers. Either the panelists weren't sure about a business model for social networks, or they had all the answers but didn't feel like sharing their thoughts with potential competitors in the room. It's not a surprise given that it's still in the early stages.

Despite the lack of real meaty discussion about the business model, there was a lot of useful insight and discussions about the social networking space. There was a general consensus that the social networking space would be very different a year from now and that it would come down to the size and branding of the networks determining the value and success of these companies, rather than barriers to entry and competitive differentiation by product features and intellectual property. There was also many references to Match.com as a success story and how you need just a small percentage of your audience to convert to paying customers to grow and sustain a healthy business with high margins. Lastly, there was an amusing discussion around the need to connect "closed gardens" of social networks and provide standards, which I think is essential if we're going to have a healthy social networking space.

I really do think that Social Networking is an exciting and emerging phenomenon that's going to have a big impact on how we interact with our friends, colleagues, and business associates. However, given what I've seen so far, I feel that these small players are going to get absorbed/crushed by the Yahoo's, MSN, and Google's of the world. We will see social networking functionality become an integrated service provided in an application suite. Just like Microsoft Outlook and Yahoo have email, calendars, and address books, it wouldn't be a stretch to extend their services to support social networking functionality. They already have the captive audience and branding so adding social networking functionality isn't really a high barrier to entry for them. We should all stay tuned for a lot of interesting M&A activity in this space, rather than the next big thing.