With all this attention from mainstream media and VC's, it seems inevitable that social networking is destined to go through a mini bubble and crash, hopefully followed by a sustainable recovery, much like the internet bubble. It's pretty clear what's sustaining the bubble. Whenever you hear about $50M+ valuations for companies with no revenue and no clear business model, it's usually a good sign that we're in a bubble. The interesting question is what is going to cause the crash, and is there anything that can be done to prevent it?

There are many issues with social networking that could cause it to fail such as privacy and the lack of clear busines models. However, I think the single biggest thing that is going to kill social networking is also the one thing that is driving the boom in social networking today. Basically, social networking is going to end up being the victim of its own success. If you look at what's driving the investment in social networking, it's the viral spread and network effect of the technology. Bill Gurley from Benchmark states:

"Free e-mail like Hotmail had viral marketing but not increasing returns. I see both in this social-networking thing. As the network gets bigger and bigger, there's more value to incremental users"

If the appealing thing about social networking companies is their ability to create large communities of connected users, you then want to go out and sign up as many users as possible. After all, more users equals bigger network, more viral spread, and hence sustainable increase in eyeballs for subcriptions, targeted ads, etc. If you follow this logic, the ultimate end goal for social networking is to have everyone connected via six degrees of separation. In fact, this is exactly what's happening today with social networking and therein lies the problem.

I'm starting to hear stories about people who join social networking sites and end up with networks of thousands and even tens of thousands of people. You also hear amusing stories about how these people receive requests from total strangers to connect them with other total strangers. You then have to start wondering how much value there is in a social network of tens of thousands of people you barely know. The net result is that people try the social networking sites, find limited value, and then move on. If this is the typical usage pattern from your customers, you don't have a sustainable business, especially from a revenue perspective.

Going back to the question of how to prevent a crash in social networking, I think companies need to focus on the value proposition behind social networking. The focus should not be on growing the network and viral spread. Building companies on business models alone is always a bad idea. The focus should be on coming up with technology that enable users to control, manage, prioritize, and nurture their social networks on an ongoing basis. The proritization and nurturing technology is going to be essential for social networking to succeed long term.

The second thing that companies need to focus on is educating their users on networking. Just because you have an email list with ten thousand names doesn't make you a master telemarketer, the same applies for social networking. Many professional networkers network with a specific purpose and they have their own best practices and techniques. Some people go so far as to create their own wishlist of people they would like to meet and their networking activities are driven by this list. Since professional social networking is new for many people, companies are going to have to guide and educate their users to ensure they get the maximum value out of their social networks.

In conclusion, I think the true value of social networking is in the ability to manage and nurture your network of relationships for a specific purpose. After all, why invest time, energy, and money in social networking if you don't have a specific purpose? Now that social networking companies have all this money, let's hope they focus on the value to prevent social networking from becoming a victim of its own success.