David Prosser: Trendy and cool does not equal profit

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The Independent Online

Outlook Perhaps we should forgive the technology industry for a short-term memory lapse. After all, FSA boss Adair Turner said yesterday that some in the City had already forgotten the lessons of last autumn's financial crisis, so to expect the social networking industry to remember what the dot.com boom and bust taught us 10 years ago might be considered unreasonable.

Here, then, is a reminder. However, whizzy the technology seems, however in touch with the zeitgeist the product feels, and however young and trendy your staff, you don't have a viable business until you have a credible business model. If you haven't yet dreamed up a way to monetise your creation, then don't count on it earning you a living.

Lesson number two is that big businesses can't do cool. Four years ago, News Corp paid $580m for MySpace – if it were to sell it today, even after the latest cost-cutting measures just unveiled, it would struggle to raise half that sum.

In their rush to embrace Rupert Murdoch's conversion to the internet, News Corp executives made the same mistakes with MySpace as those dot.com backers of the late Nineties. They threw money at the business, opening a worldwide network of offices, without having a clear picture of how they would ever earn a return on their money.

Now MySpace has been eclipsed by younger, cooler kids – Facebook and Twitter – those costs are being slashed. Eventually, no doubt, News Corp will put the thing up for sale.

It should take the plunge sooner rather than later. Look at ITV. It bought Friends Reunited for £120m and is now thought to be hawking it round for only a third of that price. Once these things go out of fashion, they really bomb.