Considering the Social Networking Application World for Investors

Investors may only have a passing sense of what social networks and applications are all about but the valuations of companies like MySpace and Facebook are a good enough reason to pay attention. The $850M acquisition of Bebo Thursday by AOL (TWX) adds more fuel to the fire.

O’Reilly is by no means a newcomer to the space but they have been investing in developing more analysis around these new technologies for those that need a primer. We took at look at their new "The Facebook Application Ecosystem ($)," which begins to lay the groundwork for understanding what does and doesn’t work in the social networking application world.

The fact that users mainly use these applications for enhanced communication should come as no surprise. We find many of the subcategories to also represent enhanced communication. It all makes sense given that for about 20 years we were stuck with email only for online communication. Then we got IM about 10 years ago and it’s time for more. Eventually we may all get to some grand space combining social software and environments like Second Life.

For now though there are some practical aspects of social networking systems the O’Reilly piece points out that we wish more companies would pay attention to. That’s mainly notification and openness (we are paraphrasing a bit here). Many of us are members of a dozen social networks now. We can’t be bothered to login to each one to see what is going on or force our friends to be inside to communicate. Being able to be notified about new news and developments is a key requirement for the successful social network.

There’s plenty more in the report and there are others that start to examine the applications emerging for these new "platforms." We are seeing these emerge on the business side over at LinkedIn as well.

Lots of these networks will fail or certainly not provide great returns for investors without perfect timing. But the evolution of interactivity is a given and a major aspect of Web 2.0 or Web 3.0 will be all about it. We expect the mobile Internet and advanced phones like the iPhone to usher in even more growth for social applications "on the go" which will appeal to a greater number of non-geek users.