It goes without saying that social networks have forever changed the way people interact on the web. Facebook recently passed 750 million users, Twitter passed 190 million, and Linkedin has surpassed 100 million users. These platforms have changed the way people shop, play games, conduct business, and discover content and in doing so, have created many opportunities for startups.
We are firm believers that social platforms will drastically alter the Internet landscape and are excited about our investments in this area, with companies like Kabam, which is developing some of the most engaging games on Facebook, and Branchout, which brings professional networking to the Facebook platform. Additionally, many of our most successful companies like Machinima, Scribd, and Thredup leverage Facebook to reach millions of users.
Social platforms offer several important advantages to early stage companies. With hundreds of millions of users, these platforms offer relatively easy access to an engaged user base through viral communication channels. Users are not only willing, but excited to share information and influence their friends and coworkers. Instead of sifting through a maze of anonymous reviews and interactions, users can now find powerful endorsements by trusted friends or thought leaders. These channels are powerful, as shown through the recent success of Branchout, which managed to grow from 30,000 to more than 800,000 users in a single week!
Despite these advantages, social platforms are not without their risks. First and foremost, there is the obvious threat that the platform may subsume a startup’s core business. Twitter has done this on several occasions, most notably in the client and photo sharing spaces. Additionally, there is the risk of changes to the underlying platform which can alter a startup’s business. Gaming companies like Zynga and Kabam are in the midst of a shift to Facebook credits, a virtual currency required for all Facebook transactions. While credits offer some lift to gaming companies from a simpler buying experience, these credits also shift 30% of revenue from gaming companies to Facebook.
Despite the risks, we’re incredibly excited by the social transformation we’re observing and we believe social platforms like Facebook can be a great ecosystem for startups. Just as gaming was fundamentally altered by the addition of a social layer, we expect other consumer and business categories such as search, commerce, sales and customer support to undergo similar transitions. A savvy entrepreneur will successfully navigate the risks these platforms expose to take advantage of their tremendous viral power in creating these new categories. If you know one of these exceptional entrepreneurs, we’d love an introduction!