There may be too many startups chasing the social trend, according to partners at VC firm Canaan Partners, but it’s still going to be one of the biggest growth areas in 2011, and there are ways to stand out from the crowd.
- Go vertical. Deepak Kamra, who has been a VC since the early 1990s and led Canaan’s investment in social dating service Zoosk, recommends focusing on specific verticals. Social gaming and shopping may be pretty well established, but other areas like travel, cars, and health care are not.
- Don’t depend on Facebook. According to Maha Ibrahim, who helped back social game companies Kabam and Inhale Digital, it’s a lot harder for a game company (or any other startup) to use Facebook to grow virally than it was a year ago. That’s because Facebook was worried that too many apps were spamming users, so it changed the way it handles notifications from third-party apps — if you don’t respond to my first message about an app or game, you probably won’t see any more after that.
Kamra also noted that Facebook is becoming the default platform for social networking apps, but it’s important for companies to have a strategy outside Facebook — including their own store front with lots of traffic, a solid customer list, and all the other hard things that Internet startups have always needed.
That’s not only because Facebook is making it harder to spread the word virally, but also because Facebook will face pressure to increase its share of the revenue flowing through its platform — just as other platform providers like Google and Microsoft have done in the past.
Although social is the hottest flavour of the moment, there are other big areas of opportunity in 2011 as well:
- Cloud. Ibrahim thinks this is the year that big enterprises and developers will embrace the cloud, particularly as tablets come into the enterprise and companies want to make corporate applications available on them. She sees opportunities for startups that can help in areas such as performance, security, virtualization management, and data storage.
- Mobile. Ibrahim is particularly bullish on mobile games and selling virtual goods (like online gifts or items for use in games), and Kamra thinks that mobile advertising is in its infancy and could see a big spike in 2011.
- Networks. As demand for video over the Internet and on mobile devices skyrockets, startups who can help network providers increase bandwidth and lower their costs will do well.
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