The more monetization you do on a social network, the worse the consumer experience becomes.
These are the words of venture capitalist Bo Peabody. You'd expect that sour note would have been delivered as part of an explanation of why he doesn't believe social networks are worth funding. You'd be wrong.
Peabody's piece in this month's Fast Company is called Why Do VCs Still Love Social Media?, and his answer is that a VC would fund a social network in hopes that it might get snapped up by a bigger fish, which would then ostensibly make money off the network indirectly:
As part of a larger ecosystem, the business can make money from those users elsewhere.
This is a rather startling admission. To this day nobody has figured out how to make a VC-funded social network turn a profit over the long term. Peabody admits it:
It's just remarkable that in 20 years we haven't figured it out. It may be that it's unsolvable.
This has been going on for 20 years, yet millions of dollars are still being thrown at social networks in the hopes that fat cat acquirers will be able to magically make indirect revenue from them.
These businesses are not being funded to last or built to last, because nobody has even figured out how to combine VC money with a sustainable revenue model. I can't help but wonder how much of this is the fault of VCs, who as a group are still pushing the "build it and the revenue will come" approach to revenue generation. With social networks they have essentially given up on sustainable revenue models.
Build it and hope someone buys it isn't exactly an inspiring mantra.
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