Many media sources, including MIT’s Technology Review, arguably a best-in-class publication, believe social networks (like Facebook and MySpace) are not viable businesses. Some go as far to say that social networks don’t make money. (As it says on the cover of the August issue of Tech Review).
Obviously such statements are more supposed to piqued interest more than summarize the reality of the situation. Social networks make piles of money - MySpace will accrue $650 million dollars this year. I can do a lot with $650 million dollars, can you?
To argue that this is “no money” is insanity - the only rational argument that could be presumed is that this sum is less than the potential revenue. This is usually the reasoning of most analysts - using advertising performance metrics of social networks relative to other systems reveals that the CPM (revenue per thousand page-views (literally Cost Per Thousand)) of Facebook and MySpace is significantly less than other content sites.
For anyone familiar with online marketing this is hardly surprising. Any site or application which has a broad, general audience will have a significant dilution in value. Facebook isn’t Google, they don’t have literally everyone of all stripes using their product - they only have the demographic willing/wanting to use social networking sites. This demographic (very young, highly tech and media savvy) is notoriously difficult to monetize using normal CPC advertising - they don’t click on ads and if they do they don’t buy anything when they land; this is bad news for advertisers and lowers the willingness to buy ad space.
Google can benefit from network effects because they cast arguably the widest net on the internet - fat white financiers use Google and so do single-moms; the same can’t be said of MySpace and Facebook with the same degree truth.
Moreover, MyBook has fewer revenue dimensonalities than something like Google - there are advertisers and users - as far as I am aware, application developers can’t hook into MyBook’s advertising and must do it themselves (this may have changed since I last looked into it). So there isn’t a socially networked version of the AdSense, AdWords, AdRank system that creates this amazingly profitable cycle Google has perfected.
MyBook, needs to stop using their audience as the currency and start developing partnerships with application developers through revenue sharing of advertising. In the same way Google gives away approximately 30% of its ad revenues to partners MyBook should be able to accommodate application developers.
Following that they need to produce their answer to AdWords - anybody with 5 minutes and a credit card should be able to launch socially networked intelligently distributed advertisements across the platforms. With distribution based on user behaviour and profile data rather than keywords. If Facebook provided an auction system like Google’s AdWords keyword auction AND an AdRank system they’d see massive increasing ROI on their network - perhaps outstripping MySpace’s earnings due to their less “diluted” audience (MySpace tweens aren’t in command of Visas).
Many observers make an argument like this one. Essentially they argue that social networks need to develop a novel delivery system for advertising content - one that folds into their existing content stream. Curiously, they often cite Google as an example. However, I would note that Google is fastidiously careful about delineating paid advertising from standard content; there’s never any ambiguity. Google won its marketshare because of it had the trust of users (and it melted the stoney hearts of tech journalists) - it did this by not tricking anybody. Facebook contravened this wisdom with it’s disasterous Beacon project.
There’s also the simple argument from the side of advertisers - the administrative overhead of a novel (probably unique) delivery system adds cost to a campaign. They’ve got to re-engineer their creative, adapt to a system and negotiate details particular to just that campaign. Account managers want to make sales and get contracts signed - not handle the configuration minutia of a specialized system.
Deploying a system that uses existing creatives and traditional measurement metrics brings both a simplicity and credibility that a totally new system would lack. Anyone who works in business development needs to compare the opportunity cost of campaigns readily and will often avoid “misfit” campaigns because they can’t know if they’re succeeding or not.
Obviously something like Beacon needs to be deployed to realize the true monetization potential of social networks - but it will probably take the form of socially networked store-fronts embedded into the platform rather than completely external systems. In this sense users would assemble their own virtual shopping-malls by connecting themselves with brands and retailers.
This does not, however, eliminate the need for standard advertising - these methods need to be improved and optimized to leverage the kinds of things social networks know that other content sites don’t or can’t.
The revenue potential for social network sites is tied directly to the trust users have with their social network provider - which MySpace and Facebook have both failed miserably to engender to the same degree as, say, the omnipresent Google.
That said, if such attachment and loyalty can be engendered rather than enforced via walled-garden systems, the earning capacity of social networks is arguably the greatest of the current stock of content channels.