The quote from Fred that keeps sticking with me is this:

Friendship has been defined on most social networks as the people who get their faces on your profile. But as these social networks start to add real applications/utility on top of the relationship maps it’s going to create issues. Friendship is not a monolithic thing. It’s a nuanced thing.

What we have seen from talking with literally hundreds of users of professional social networks is what we’re calling a “dilution of trust” among users. Many people only “know” a small fraction of the people in their immediate online network. If everyone had played by the rules, and only “connected” with people that they actually knew, then we would likely be having a different conversation here.

Current social networks have largely become a “numbers game.” The quality factor has been largely supplanted by one of quantity. Instead of saying “wow, look at this nice, tight collection of strong contacts that I can leverage”, it has become a “Wow, honey, look! I now have 25,000 friends, and am connected to everyone in the free world!” The dilution of trust.

And as Fred points out, when “real applications” start appearing (or trying to appear) on top of those relationships, the problems become pretty apparent. Apples and oranges. Square peg, round hole. Whoops.

The social model we’ve implemented with HiddenMarket was born out of our realization that it was time for the a new iteration in social networking (at least on the B2B or professional side, where we sit.) It is refreshing (and validating) to see someone like Fred speaking out on this issue.

Cheers.

You can read Alex’s post here, but I will offer a few thoughts to go along with what he (and Fred Wilson and Paul Kedrosky) are saying.

First, to have a “bubble”, there has to exist something to exert upward pressure, generally around pricing, cost, valuation, etc. I see nothing doing this, for all of the reasons pointed out in Alex’s post. VCs are active, but they are certainly not investing at the levels we saw before. There are certainly “pockets” of heavy investment, but nothing on the scale preceeding the stupidity-parade of the late 1990s.

Another point I’d like to make is that the bursting of ye olde digital bubble in the late 1990s affected most major markets. Atlanta, for instance, was one of the heaviest hit areas back then. The investments back then were fast, furious, and all over the map.

That simply isn’t the case now. Believe me, there is no Web 2.0 bubble here in the southeast. Most investors here couldn’t tell you the first thing about Web 2.0. They are still largely continuing to lick their wounds.

The key point, to me at least, in Alex’ post was his statement regarding the lack of copy-cat investments. This is a HUGE distinction from the 1990s. If one online dog food company secured a round of $5M, three more received $10M, with a fifth startup receiving the $50M warchest. That is not the case now; with a few exceptions – such as the rush to solve the world’s “video file sharing problem.”

What we see now are lots of bootstrapped startups, with the VCs letting a “clear” winner rise to the top, and then infusing capital into that player to bolster their postion. Instead of investing in lots of copy-cat plays, VCs are now searching for those plays that complement those other portfolio investments. In other words – taking previous investments to the next level. Big difference.

And has been pointed out by everyone already, the deal sizes are not at pre-bubble levels, which in effect reduces the impact of failures.

I’d be more worried about the housing/real estate bubble.

Cheers.