Forrester: Don't Believe The Startup Hype

by Mark Walsh, Jun 17, 2008, 7:00 AM

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Steer clear of consumer-oriented social networks, except for more established players like Facebook, Twitter, Digg, and Ning, advises Forrester Research in a new report. Instead, look to services catering to the more practical needs of corporations.

Consumer sites are too risky and may not attract enough users to survive, while business-to-business Web 2.0 startups have a much better chance of surviving since their success doesn't hinge on drawing huge audiences.

"The (B2B) startups grow because they deliver value for which they can charge a premium and get customer loyalty," wrote Josh Bernoff, a vice president and principal analyst at Forrester, in a related post on the firm's Groundswell blog. "The customers of these companies don't defect when something shiny and new comes along, because they like the service they're getting."

Taking a conservative approach, Forrester cites companies providing social tools that help bolster customer relations or customer service. They include businesses such as Communispace, which operates hundreds of private communities that its clients use to learn more about their customers. Marketers pay upwards of $150,000 for the service, according to the research firm.

The report also points to brand-monitoring firms such as BuzzMetrics and Cymfony (acquired by Nielsen and TNS Media Intelligence, respectively) and agencies such as Sapient, VML and Avenue A/Razorfish that create social apps intended to advance conversational marketing efforts.

Overall, Forrester forecasts Web 2.0 spending by corporations to exceed $700 million in 2008, with most of that coming from North America. At the same time, the firm casts doubt on the prospects for monetizing consumer social sites.

"Facebook hasn't yet unlocked that advertising gold mine, and flubbed up its most prominent try with Beacon," wrote Bernoff. "Twitter has no business model yet. Ning has hundreds of thousands of visitors, but still runs Google AdSense ads. And these are the successes. No wonder people are skeptical."

While Bernoff concedes most of the B2B companies' social technologies are "positively mundane," they also provide labor-intensive client service that adds value customers are willing to pay for.

"They're not flashy and they don't grow like mushrooms. But they've got all the business they can handle and they are growing," he noted.

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