With Facebook raising another $500-million (a move that raises its valuation to a staggering $50-billion), one of the issues raised is the future of MySpace.
Could Facebook’s new financing help MySpace find a potential buyer? Or does it mean Facebook is so strong that MySpace’s already-fading prospects have become even more bleak?
If we run with the second scenario, it thrusts the idea of industry consolidation into the spotlight. After several years of strong growth, healthy competition and lots of start-ups, many social media markets have well-defined leaders with big chunks of the market.
The gap between the leader and second-largest player in many market is fairly wide, and then the gap between everyone has is enormous. This has not stopped start-ups from thinking they can come up with a better mousetrap – just look at the number of social social networks such as Diaspora, as well as the niche social networks that continue to emerge.
While reduced start-up and operating costs have lowered the barrier to entry in many markets, the reality is bubbly (maybe even frothy) investment landscape and the economic realities of relying on advertising are going to come home to roost for start-ups trying to gain footholds in markets where there is a dominant player.
These start-ups may, in fact, create a better mousetrap but unless they are significantly better or really unique, the chances of capturing the spotlight are fairly slim.
As social media matures and evolves, consolidation will become a fact of life. The number of companies that will fade away or merge will start to increase. It doesn’t mean start-ups will disappear (just look at the search engine start-ups that continue to battle Google) but could see fewer players in markets such as social networks.