Bettino: Next Phase of Social Networking Revolution is B2C

SAI contributor Larry Bettino is a general partner at New York-based VC firm StarVest Partners.  The firm invests in technology enabled business services companies throughout the U.S.  It recently invested $2 million in business-to-consumer social networking leader Passenger.

Microsoft’s massive investment in Facebook underscores the importance of the social networking revolution.  The next phase of this revolution, in our opinion, will be the adoption of the technology by businesses.  We will soon see many more global, brand-centric companies embrace social networking to grow their business and deepen their relationships with customers.

Many industry analysts predict the social networking market could reach $2 billion by 2012, as corporations turn to online communities to drive new sales engagements, share information, and conduct research.  At StarVest, we feel this will fundamentally change the way corporations advance their own business goals.

For example, when a large consumer goods company wants to roll out a new product, one of the critical up-front marketing tasks is research.  To do this right, companies often need to deploy dozens of people to lay out the major objectives; develop questions; plan the session; recruit attendees; and analyse the results.  The process can take months and can cost tens of thousands of dollars…

Now, however, the same company can use social networking to conduct accomplish the same goal.  One of our portfolio companies, Passenger, is a software-as-a-service company whose platform combines social networking, community building and collaboration technologies.  Passenger allows companies to build a private online community in which they can test new product ideas at a fraction of the cost of traditional market research.  Passenger also provides what many analysts believe is the “Holy Grail” for marketers: analytics.  The software allows marketers to quickly analyse data telling them how millions of online community members are reacting to their products and ideas.

We invested in Passenger for three reasons: They are selling software-as-a-service as opposed to agency services, which we view as a more sustainable and defensible business. We felt Passenger’s business model was much more scalable than competitive models.  Lastly, the company has proven it has a solution that the market needs, having already signed several Fortune 500 customers.

Investors and entrepreneurs looking to reap the rewards of social networking should consider where we are in its evolution.  The consumer segment of the market is saturated.  Now that corporations are embracing the technology, however, we’re witnessing a fundamental change in how market research and marketing will be conducted for years to come.  And that should create plenty of opportunity.

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