Readers of the Financial Times are a canny lot. After all, you don’t get to be concerned with the financing of the country unless you know a thing or two. So it was interesting to read in yesterday’s newspaper that the City believes that social networking on the Internet is at least as important as the dot com boom of the late 1990s.

Back then companies invested millions of pounds in business ideas, only a few of which worked online. Now, the likes of YouTube, MySpace and so on are racing around the globe in a bid to set up localised versions of their successful US sites. Everyone it seems from the companies themselves, their investors and the FT believes that social networking is the holy grail of Internet money making.

We have been here before, of course. Ten years ago everyone knew that dot com businesses would make millions – only to have their fingers burned. This could be the same story all over again.

Social networking is a significant step in the online world. It is an important development because it starts to replicate online what we have offline. It therefore means that from a psychological perspective the Internet starts to appear more like our “real” world.

However, it doesn’t mean that big business is going to win. The FT may be confident that the global chase being made by YouTube and MySpace is the way ahead, but history tells us otherwise. The real winners of the dot com boom were the solo entrepreneurs. Thousands of them have made multimillion pound fortunes by doing what the big dot co companies failed to do – niche.

The same will be true for social networking. General social networking sites will eventually lose out to niche social networking sites. In the “real world” we don’t have a single social group. Instead we belong to several social groupings that serve different purposes – neighbours, work colleagues, sports fans, people at the gym and so on. We don’t mix them up into one big group. Hence MySpace and its like do not completely replicate what we do offline.

As the solo entrepreneurs capitalise on social networking and start creating niche social networking sites, the big companies will lose out – just as they did in the dot com bust that followed the boom. Don’t put your money in MySpace just yet!

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