Will Location-Based Social Networks Be the Next Facebook?

If we had to pick Just One Word to describe this year's South By Southwest Interactive conference (or SXSW, as attendees call it) it would be "social."

We're not just talking about the parties, though there were plenty of those. We're talking about social media. There were new networks for connecting with those we didn't know. New tools for analyzing what the new connections meant for business. And new blogs and magazines for documenting it all.

While the company didn't have an official SXSW presence, you could almost sense salesforce.com (NYS: CRM) chief executive Marc Benioff's I-told-you-so smile while walking the halls. He's bet everything on selling cloud services to "Social Enterprises," businesses that embrace social media to engage better with customers, partners, and suppliers. Salesforce revenue improved 38% in Q4 as customers embraced Benioff's Big Idea.

LinkedIn (NYS: LNKD) co-founder Reid Hoffman and The Start of You co-author Ben Casnocha captured the Zeitgeist in their presentation on the benefits of being in "permanent beta." Every slide included 140-character chunks of advice, perfect for Tweeting. You can bet most of the advice made it onto LinkedIn's socially aware pages, which saw a 60% increase in registered users and a 62% increase in unique visitors last year.

More digital stalkers ... can this be good?
Neither of us believes an overdose of social media is good for us as humans or as investors. But is there a place for social stocks in a balanced portfolio? Tim says yes; Karl isn't so sure. Who's right? Read on and then let us know what you think, using the comments section below.

Karl: No doubt "social" was the overriding theme of SXSW -- though it was, admittedly, a pretty wide-ranging meeting. Numerous sessions discussed new ways for people to connect to one another, and new ways to use that information. Television networks are desperate to promote loyalty and viewership. Start-ups see opportunity in new permutations of how we connect. Businesses want to build buzz around their brands and products. Individuals want to take best advantage of their connections.

Tim, you're an avid user of social networking tools. Did you see anything -- whether it is was a new company or concept or application of social data -- that really impressed you at the meeting?

Tim: More than anything else, I found it interesting how much data SXSW itself created. Tens of thousands of tweets broadcast per day matched with an overwhelming reliance on Facebook for scheduling and tracking events. Foursquare founder Dennis Crowley took the stage during the conference and predicted that, within three years, we'll wonder how we ever lived without location-aware networks and devices.

If he's right -- and I think he is -- Google (NAS: GOOG) will deserve at least some of the credit for seeding this market. Its Google Maps programming interface is among the most-used by social software developers, which makes the Big G owner of what might be the most-valuable marketing database in the world. Can you imagine what happens when CEO Larry Page negotiates data licensing deals with Foursquare and other location-sensitive networks, combining check-ins, comments, and reviews into a storehouse organized by location, time, event, and more?

And that's just the beginning. SXSW saw new location networks catch on quickly -- Highlight and Glancee, in particular. Both promise to tell you more about nearby acquaintances -- people you might not see, but which the networks see because they're plugged into Google Maps. As a human, I find that a little creepy. But as an investor? I'm intrigued. What about you, Karl?

Karl: Foursquare launched at SXSW in 2009 and Twitter gained critical momentum there, so everybody wonders what new successes might come out of the meeting, and it seems all bets were on Highlight. We both gave it a try, and while it had a few quirks -- the app failed to tell me that you were sitting next to me, forcing us to actually turn and speak to one another -- it certainly opened up a new view of the social landscape around me.

But its main distinction from older apps like Blendr or Badoo is that it has less of a focus on hook-ups and more (at least so far) on business networking. Initiating a chat with a total stranger based around the revelation that you both like techno music seems awkward to me. Is it less so when the common interest is, say, HTML5? Maybe, but it probably limits the utility to large meetings like SXSW. The fact that it runs in the background, combined with its ability to map strangers' locations -- while broadcasting your own -- makes this a "not safe for home" app.

For me, it went downhill from there. Glomper was perhaps the most-heavily promoted social app at the meeting. It builds on the top of Facebook and other existing social tools, offering a different view of parties and other social events -- pictures, comments, locations of friends, and so on. Maybe I'm missing something, but this seems like an idea that should have gone into Mark Zuckerberg's suggestion box, not launched as a company.

Womzit ("the Word of Mouth App") was pitched to me as "like Pinterest, but with your own photos." Got it? And then there's Hibe, which wants to extend the concept of Google+ "Circles" by letting you completely separate your various social contexts of friend, family, profession, and so on. And they hope to do it not by building on top Facebook or Google+, but by establishing an entirely new social network. Yikes!

Highlight has some serious backing from Benchmark Capital and others, but so far VCs are being pretty selective about the space. I don't think there's enough air here to inflate a social bubble, but around many of these ideas you're going to hear more popping than a bowl of Rice Krispies.

Tim: Agreed. Yet even with most of the social start-ups we saw go away, all of them in some way support the two anchors of the social mall: Facebook, with Connect; and Google, with Maps. And both should profit handsomely from the resulting vats of data hosted on their platforms.

YOU: Where do you stand on the rise of location-driven social media? Let us know in the comments box below.

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At the time thisarticle was published Fool contributorsTim BeyersandKarl Thielare members of theMotley Fool Rule Breakersstock-picking team. Tim owned shares of Google and salesforce.com. Karl didn't own shares in any of the companies mentioned in this article at the time of publication.The Motley Fool owns shares of LinkedIn and Google.Motley Fool newsletter serviceshave recommended buying shares of Google, LinkedIn, and Salesforce.Motley Fool newsletter serviceshave recommended shorting Salesforce. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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