Multi-Platform Applications Could Be Social Networking's Achilles' Heel

Includes: GOOG, LNKD, NWSA
by: Galileo Russell

It would be difficult for anyone to be bold enough to predict the outcome of all the social network jostling we've seen in the past several years. So many major corporations have gotten it all wrong that any individual picking which social networking site will reign supreme in 5 years seems absurd. In fact, in July 2005 social titan Myspace was bought for $580 million by The News Corporation (NASDAQ:NWSA), only to be sold in June 2011 for a mere $30 million. Its failed investments and passing trends like Myspace that make social networking companies risky investments and breeding grounds for skeptical analysts.

Since the inception of the internet we've seen several major players dominate the social networking scene. First there was Friendster, which was quickly replaced by the cooler and more innovative Myspace. Then in the late 2000's Facebook came along and not only replaced Myspace but took social networking to new levels by introducing third party applications. These "Applications" were originally Facebook's superior feature to Myspace. Applications enabled users to do expand their social networking experience beyond the basic "Wall" and "Add A Friend" features. Applications can be anything from games to different ways to video chat. It's no question that interacting on Facebook through these third party applications is what truly makes consumers social networking experience one that they will want to return to on a daily basis.

As applications have evolved over the past several years it's important to note that they have evolved to be able to adapt to be used on any platform. Let's take the rapidly expanding Facebook application Rounds. After a brief look at Rounds it seems like any other video chatting service, but after one use you'd realize it's much more. Rounds allows Facebook users to video chat while simultaneously playing a number of online games, watch Youtube videos, listen to music or even just mess around with a number of entertaining effects. But what makes Rounds even better is that one person can be using it from a tablet or smart phone while another is sitting on their desktop computer at home. If we take this concept a step further, it's even possible for one user to access Rounds via Google (NASDAQ:GOOG) Chrome (without Facebook) and one be on Facebook. This means that as time progresses consumers will become less dependent on websites like Facebook but rather third party applications that can run on multiple platforms.

Now from an investor's standpoint this offers an excellent double sided opportunity. If we have learned anything from the brief history of the internet it's that websites come and go, especially when it comes to social networking. After all, no one's attached to Facebook, there only attached to the connections they make through Facebook. This pattern would indicate that Google+ is shaping up to be the next big thing. As we've seen with Android Google is no slack at introducing a slew of third party competitive applications for their products. With most applications like Rounds already adapting to the tablet movement it's safe to assume they'll be on Google+ the second it gets out of the beta testing phase. With all the blockbuster Facebook applications already being multi-platformed they are in prime position to switch over to Google+ if that's what the consumer demands. The history of social networking has shown us that consumers have no problem making an exceptionally quick transition from site to site. As Google+ hits the scene with new features and all of the same applications that helped make Facebook as big as it is, the outcome of that battle seems like a no brainer.

But, it's a two sided sword. The same cyclical business aura that seems to be propelling Google+ at the moment, will also eventually be its downfall. There's almost no doubt that in a couple years another social networking site will come down the road and recapture the intrigue of consumers. Until then it looks like Google shares will benefit from a very strong showing of Google+. If Facebook can soar to a $100 billion valuation then why not Google+? Google's market cap is only $170 billion right now, another $100 billion baked to the price means serious gains for investors.

The only company that looks to be exempt from these backstabbing third party applications is Linkedin (NYSE:LNKD). Luckily for them, Linkedin has managed not to integrate third party applications, which at one time appeared to be their weakness. That means the only thing that could really take Linkedin down would either be a new business social networking site that's somehow more advanced or boasts better features. For now Linkedin appears to be the only social networking company used purely for its service. This advantage should continue to stimulate their growth and keep its competitors at bay.

Overall both Linkedin and Google investors should be content for now, knowing that their social networking darlings have positioned themselves excellently to take on the bulk of this booming industry's growth.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in LNKD over the next 72 hours.