Are MySpace, Facebook and Digg Done?

Posted by Phil Butler on September 12th, 2007

The latest news from Silicon Valley is that key investors appear to be redirecting their focus. VC entrepreneurs have shoveled untold millions into startups that target primarily teenagers and younger demographics on social networks. Was this a well thought out investment strategy for the long term? I have said many times before that the “numbers” game of MySpace, Bebo, Digg and others is really reflective of migratory users within the same visitor matrix. Here is why I think MySpace, Facebook and even the mighty Digg are destined to fall from grace.

Quantity, Quality and Real Numbers

According to a New York Times article today Silicon Valley may be focusing on an older demographic because of the relative “flighty” patterns of younger users. According to one leading venture capitalist Paul Kennedy; “Teens are tire kickers - they hang around, cost you money and then leave.” This is a very good point if we look at what can be called a migration from Friendster to MySpace and on to Facebook by a great many users. I think we are seeing the same users inhabiting either one or all of these spaces simultaneously for varying lengths of time and degrees of interest (I also have two teenage sons who are proof).

Older demographics have some very positive characteristics - one being that they are prone to hang around and take advantage of services. This “stickiness” has propelled a new wave of investment in “Boomer” targeted social networking. In August Shasta Ventures gave TeeBeeDee $4.8 million; Johnson & Johnson spent between $10 and $20 million on Maya's Mom and VantagePoint Ventures invested $16.5 million in Multiply. In the case of VantagePoint they were an early investor in MySpace, so it would appear that some paradigm shift may be at hand. Another characteristic worth noting is the vastness of the Boomer demographic which outnumbers the teens by a ratio of 3 to 1. Initially engaging the older user was more problematic than tech savvy young users but this gap is being narrowed with every startup geared at discoverability.

User Value

I cringe a little at writing this article because of all my friends and collaborators who are of a younger demographic. They know, and any others should, that I value them as I do any other of my friends and associates - but telling it like it is means facing facts. Sites like Digg and MySpace really provide little value to the Web community. If every “A” list blogger were put under the lie detector they would readily admit that these sites are good for one thing - traffic. Well, traffic is useless if you are trying to really engage users at length. Simple numbers do not put dollars in anyone's pocket over the long term (except SEO and ad people). Older users are the ones who actually buy big ticket items, make use of site features and contribute to somewhat more meaningful discourse. This is not to say that young people are anything but energetic and often brilliant, but they simply are not settled (my son changes girlfriends like every 10 minutes).

Evidentiary Indicators

Peter Pezaris CEO of Multiply revealed that 96 percent of the site's active users return each month. David Carlick, one of the managing directors of VantagePoint (an early MySpace investor) said that these issues were on their minds when Rupert Murdoch wanted to buy MySpace for about $550 million. Silicon Valley investors are getting older too and are identifying more closely with this Boomer demographic according to Susan Ayers Walker, a consultant to businesses seeking older consumers. According to her, VC capitalists are not only identifying with more settled users - they are actually “living it” too. The list of investors goes on and on, but the cat is out of the bag really - ads supported by hollow promises cannot support the Web. At the end of the day, someone has to pay for all this technology and Boomers, young business people and “stable” users have all the dough.

Conclusion

Are Digg, MySpace and Facebook really dead? Well, if growth is their goal they can cash in now. There will always be an influx of young people who want to experience what these sites have to offer, but making the numbers greater may not be in the realm of possibility. Check out this post by Nick Denton on Valleywag for some interesting insight into Digg's growth rate/numbers. Even if we gauge everything by shear numbers negative growth indicates a trend.

As more sites engage older and more serious users, investment and ad dollars for what we might term “frivolous” activities will decline. Venture capital number will also decline as the return on investment will be diminished. This simply means that these sites will survive, only with greatly diminished capability and influence. Serious users are interested in enhancing their lives via information and products that - bluntly stated - are for older people (30-59). One way or another a shift in users and the corresponding revenue and content seems rather inevitable.

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