In the early days of online social networking, the key idea driving the pioneering companies (SelectMinds, Friendster, Tribe, Ryze, LinkedIn) was the FoaF(Friend of a Friend)-driven virality of the model.  We realized that a company could reach geometric growth , since we’d all read Malcolm Gladwell’s "The Tipping Point".  The quest was getting your service in the hands of Gladwell’s connectors, mavens and salesmen.

We were also pretty excited about Duncan Watts’s work on his then-in-progress book, "Six Degrees".  Watts was expanding on the "six degrees of separation" work of  Stanley Milgram.  The academic work around social networks made us more confident in our belief that our undertakings were part of a dramatic paradigm shift in marketing.

Fast forward to 2007 and you have Facebook, the most viral of the FoaF applications, taking over (at least my part of) the world, and achieving a $15b valuation, validated at least by Microsoft.  Our predictions of the paradigm shift are validated and many social networking services have reached their tipping points.  Gladwell was right!

O, was he?  Apparently Duncan Watts has been doing more work on the subject and he thinks not.  He disagrees with the ideas Gladwell has put forth, and claims that the popular word of mouth marketing models based on the spreading power of influentials are, for the most part, bogus:

…if you believe Watts, all that money and effort is being wasted.
Because according to him, Influentials have no such effect. Indeed,
they have no special role in trends at all.
…
"It just doesn’t work," Watts says. "A rare bunch of cool people just
don’t have that power. And when you test the way marketers say the
world works, it falls apart. There’s no there there."

Yet, it all sounded so good!..  This is a good example of how there are some stories that sound so cool, that you really want to buy them.  And, "The Tipping Point" provides such a nice explanation for Facebook, too. Such a shame…

While I generally use Occam’s Razor to debunk conspiracies and realize how difficult setting up a scheme this would be, I can not bring myself to buy the €4.9b of recent losses at Soc Gen were incurred by a solo junior trader named Jerome Kerviel.

The whole story is unfolding such ironic inprobabilities, such as Risk Magazine naming Soc Gen, "Equity Derivatives House of the Year", it’s impossible to resist finding humor in what is a truly scary evidence of how vulnerable financial systems have become. 

Financial Cookery has a hilarious post on the background. (via Marc Andreessen)

In our February event, we are discussing Telecom deregulation and MVNOs.  This month’s meeting is at Vodafone in Maslak, on February 4th.

Hope to see you there.

We’re kicking off 2008 with an ambitious Mobile Monday Istanbul meeting on Monday, January 7th at Avea Headquarters in Maçka.

Findory’s Greg Linden has a pessimistic outlook for 2008:

We will see a dot-com crash in 2008.  It will be more prolonged and deeper than the crash of 2000.

The
crash will be driven by a recession and prolonged slow growth in the
US. Global investment capital will flee to quality, ending the
speculative dumping of cash on Web 2.0 startups.

In general, I am not terribly optimistic about 2008 from a macro perspective, either.  I do think that there will be a tightening in global liquidity and that will dampen the VC enthusiasm somewhat.  However, I don’t think the result will be a 2000-like crash.

First, I am seeing much less speculative trading in the public markets.

Second, the capital raised by startups is much more in line with the investment requirements of the ventures. In 2000, we saw rounds being raised for the sake of raising them.  There was much talk of a paradigm shift.  In 2008, valuations seem to be more grounded in economic reality.

Third, at least in developed markets, the advertising revenue model is real.  In 2000, there were biz dev deals but little real cash from real companies coming in as revenue to internet companies.  In 2008, we have Google booking $15b and Yahoo booking $7b in revenues.  That is real income and the internet is now a real sector.

I stick with my call that there will not be a major dot com crash in 2008.