The headline says Social Networking is Not a Business*, with an asterisk. Below, right under the introduction, is “*but it might be soon.” That’s the lead story in the latest MIT Technology Review (it’s free, but registration is required to read the story). The lead goes as follows:
Web 2.0–the dream of the user-built, user-centered, user-run Internet–has delivered on just about every promise except profit. Will its most prominent example, social networking, ever make any money?
I’ve seen Facebook at work with college students. Wow. And with high school kids. Wow again. It’s like a magnet. A couple of years ago they modified handling what appeared on the wall, the kids threw their hands up in protest, Facebook did a quick double take. I’ve seen on campuses how Facebook is as important as cell phones. Just the photo tagging alone is magnet enough, and that’s trivial compared with the rest.
But Facebook is supposed to lose $150 million this year. MySpace revenue fell $100 million short of projections last year.
The MIT Technology Review story, by Bryant Urstadt, details some of the behind-the-scenes providers in social networking, such as KickApps and Ning. And lots of users; users everywhere. The story ticks off numbers such as 35 million unique U.S. visitors to Facebook in a month, 72 million for MySpace and 22 million for Bebo. Ning has more than a quarter of a million sites.
Reminds me of the castaway on a raft in the middle of the ocean: “Water, water, everywhere, Nor any drop to drink.” The big social networking sites have users everywhere, but not a lot of revenue. Money, yes; but it’s investment money, capital, not sales. Microsoft paid $240 million for a 1.6 percent stake in Facebook. Ning, founded by uber-entrepreneur Marc Andreessen, got $104 million in venture capital.
The story is an in-depth analysis, seven pages in its Web version. A lot deeper than my summary here. But I like this sort-of summary near the end of it.
The ghosts of vanished giants haunt social networking. So many formerly great Internet companies are struggling or dead. Consider CompuServe, AOL, Netscape, Napster–even Yahoo. Lycos, a search engine that was sold to Terra Networks in 2000 for $12.5 billion, was sold to a Korean firm for $95 million four years later.
What CompuServe and many of the others have in common is that they were portals; gateways to the Web. Facebook wants to be something similar: more than just a useful and fun social tool but the first page people open on the Web and the platform they use for all their other communication on the Internet.
As would-be portals, however, social-networking sites are vulnerable to one of the problems that brought down those earlier Internet businesses. The portals were “walled gardens” where inexperienced Internet users congregated for a time but where they became restless at last–leaving for the wider, wilder Web. Facebook and MySpace understand this and are now struggling to achieve an appropriate balance between openness and control.
They’re also struggling with faddishness. Danah Boyd, a doctoral candidate at the University of California, Berkeley, studies social networking as a cultural phenomenon. She describes online hot spots as though they were popular pubs. “It’s supercool when all of your friends go there,” she says. “Then all sorts of other people come in. Even if the pub doesn’t start feeling physically crowded, it starts feeling socially crowded when your ex is at the other end of the bar talking to some creep who brought his fellow gang members. How long until you say, ‘Enough–I’m outta here’ ?”
So that link is Technology Review: Social Networking Is Not a Business* and it does require registration, but it’s free.
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{ 6 comments… read them below or add one }
Are you sure your figures are correct. I haven’t heard of facebook losing money.
Sure social networking sites are making money, but the question is will they live up to the expectations. probably not, Facebook has a valuation of $15 billion, there is no way they will live up to that.
I am also interested in where the loss numbers are coming from.
The question is really: How will they make their money? What does ad revenue look like in the web 2.0 world? Apparently, that’s still being trudged through.
Facebook and MySpace have opened our eyes to the possiblities of social networking. Like AOL and Compuserve in their markets before, these pioneers have introduced us to the medium, but now things are moving on. The next wave of social networks will be more focused, niche networks appealing to specific needs or special interest groups. These will prove much more valuable to their much smaller communities; and more lucrative to sponsors who would their their name associated with those groups. Where there is value, there is money. Facebook’s problem is that as addictive as it is to certain parts of the populace, if it disappeared it wouldn’t be the end of the world — those same people switched from MySpace to Facebook and will now probably all flock to Google’s Lively. The focused networks will be much more valuable for all concerned.
Ian Hendry
CEO, WeCanDo.BIZ
http://www.wecando.biz
@ Business Networking, those figures came from the in-depth story I link to as the source, in the first line of the post. I haven’t double checked them, because my instinct is to trust a publication from MIT. Good question, though, skepticism is always good. Tim.
Ok, I just registered to read the MIT article. Wow, I’m really surprised to hear those numbers. No mention of Linkedin in this article. I wonder if they are in the same boat?
Sometimes whether or not a site or web company is make money at the momoent is not a good valuation if they ever will make money. Many many different avenues are available to company wishing to monetize social networks.. true their are ads, but when you begin to consider affiliate links, different paid service and other progams the true income capacity can be seen.