How to Make It in the Widget Business

There has been a lot of hand-wringing in the venture community about the future of web 2.0 startups that rely on a heavily-visited social networks to be welcoming (at best) or ambivalent (at worst) for the viability of their business.

I don't find this matter difficult to sort out. It's a question of leverage.

What do social networks need? Traffic, of course, but traffic comes and goes. Talk to AOL and Yahoo about how fickle traffic can be! It has become so easy to participate in a social network, requiring only a few minutes to create a page and link to a network of friends. Where the real time is spent, where the user really invests their effort, is to tweak out the page with ego and character. Pictures, videos, voice recorders, etc that tell your visitors something about you are what you really care about.

And that's the value: user assets. When users rely on a site to store their assets and use them creatively, that site has a created a critical switching cost. If your assets don't work in the MySpace eco-system, you will be much more likely to take your assets to a more hospitable eco-system, like Bebo or Virb.

Consider how painful it is to change to a new web mail provider, or bank account, or online bookstore. Your incumbent service will remain such so long as they don't:
A) get out-innovated (like Hotmail, Yahoo search), or;
B) fail to offer broad interoperability (Lotus Notes, AOL)

The only way that networks retain some leverage is by closely regulating the kind of services and utilities that can participate in their eco-system. Utilities like Google's search index, eBay's marketplace, or Facebook's austere network can keep things tidy because content is not their business.

If content is your business, as is the case with MySpace and the drift of Yahoo, you've got to own it or have exclusive deals to deliver it. MySpace has neither, Yahoo is working on the later.

Photobucket - you're safe. Stop crying in your beer and start telling your users all of the other social networks where they can use their creative assets. You've got a switching cost in place. Now use it.