Social Networks Not So Recession Proof

Techcrunch is reporting that hi5, the worlds third largest social network, is laying off 10 to 15 percent of their staff. Mike Trigg of hi5, told Techcrunch that the company is hiring at the same time though and there won’t be a significant change in the net number of employees at the company.

hi5’s growth has appeared to stagnate over the past few months based on both comScore data as well as Alexa data. Previously I suggested that the social networking space was practically immune to the recession since users would continue logging on to the internet daily. Additionally, given how early we are in social advertising, I wouldn’t expect budgets to be cut significantly (if at all) within social media.

Instead budgets could even rise as Gary Vaynerchuk suggests in one of his recent personal videos. Honestly, while it’s easy to group layoffs over the past week or two into the recession group, I think any exits that take place in the social networking space during this time should be thoroughly examined. Just because there are departures and potential restructurings, does not mean that the social web economy is going to be substantially impacted.

Conversely, after reading all of the reports by venture capitalists over the past few weeks, it wouldn’t be surprising to see many of the venture backed startups cut back on their spending. The only reason is not based on revenue projections but based on a more challenging environment to raise later rounds of funding. From what Mike Trigg said, it sounds like basic restructuring. I’m interested to see if this trend continues.