December 23, 2008
Social networking has a problem. It's not the users; they're logging on, creating profiles and building friends lists like nobody's business. It's the business part that's the problem. After years of development, millions of members and untold amounts of venture capital, social networking as a business is a bust.
Not the latest thing
Social networking has been around pretty much as long as networks themselves. Before the World Wide Web turned the internet into a primarily commercial structure, most of the activity that took place among the links between computers was of a social nature. Often it had an academic or scientific focus -- the internet has always been great for sharing arcane information -- but it was also collegial, if collegiate. Usenet, which dates to 1980, is essentially an early chat room architecture, and LISTERV, launched in 1986, is a mailing-list application that predates e-mail.
One of the earliest of the modern-day social networks is Friendster, which will celebrate its seventh birthday in March. It has lasted longer than the dot-com bubble of the late '90s, and has made about the same amount of money for its investors, which is to say, none. In fact, MySpace is the only social networking site that has been reported to turn a profit; every other site, when it comes to making a buck, might as well be sitting on a floppy disk on a shelf somewhere, anonymous to the world.
The hype surrounding social networking first became really audible when the hit stats at MySpace started climbing beyond anyone's expectations. MySpace became a marketing supermarket for videographers and musicians, and attracted a whole lot of eyeballs in the process. Then Facebook hit the scene, and when it broadened beyond its college campus roots, making an e-mail address its only eligibility requirement, it took social networking mainstream. It has over 140 million active users, and that number continues to rise quickly. Unfortunately, Facebook doesn't make money.
Getting down to business, slowly
This fall, Facebook CEO Mark Zuckerberg announced that he is working on a business plan for Facebook and hopes to have it complete in three years. It's a bit surprising that Zuckerberg apparently thinks he has that much time. It's possible that when Zuckerberg comes back with his plan in 2011, the playing field will look more or less the same as it does now, but things certainly changed between 2005 and 2008, and there's little reason to think they won't shift again.
The company has tried to generate some revenue. Facebook was red-faced last year when it implemented a social tattling platform called Facebook Beacon, which notified your friends of every purchase you made. Advertisers and retailers loved the idea, but most members were outraged at the level of snooping Beacon performed. Concerns about privacy exist on Facebook, like everywhere else; the line is drawn in a different place, but it's still possible to cross it. Facebook quickly got the message and disabled Beacon; Zuckerberg apologized to all.
Follow the money
Trying to figure out how social networking sites can make money has become a small fad unto itself. Here, high aspirations may actually be something of an obstacle. Potential investors get hung up on grandiose scales -- all the millions of unique users and visits per month -- and they dream of billions of dollars of revenue. If they would scale back two or three zeros, they might improve their chances of getting something back on their investment.
The easy route for making some money is a basic subscription charge. If the roughly 140 million active users on Facebook each paid $5 per year for their page, it would generate $700 million, not a bad year's work. Some people would give up their page rather than pay anything, but $5 per year is pretty nominal -- it works out to about 1.37 pennies a day, a fact the site could easily advertise -- and Facebook would probably retain a healthy percentage of the 140 million. Any other monetization plans could be added to the site in addition to that subscription fee, as long as it didn't add to the cost for the member.
Is social networking a business?
Ultimately, the most pertinent question may not be whether social networking can make money but whether it's meant to exist as a standalone activity. It seems like Microsoft could easily build most of the basic features of a Facebook page into Outlook and give it away free as part of Windows. Goodness knows Microsoft has spent millions in the past on things that haven't made any money for it. With social networking getting the attention it does, it's a perfect stage for Microsoft, a company that historically has loved the bright lights.
Should that happen, Mark Zuckerberg won't ever have to meet that far-off deadline for his business plan. If things ever come to that, social networking won't be a business; it will be a free plug-in.
Not the latest thing
Social networking has been around pretty much as long as networks themselves. Before the World Wide Web turned the internet into a primarily commercial structure, most of the activity that took place among the links between computers was of a social nature. Often it had an academic or scientific focus -- the internet has always been great for sharing arcane information -- but it was also collegial, if collegiate. Usenet, which dates to 1980, is essentially an early chat room architecture, and LISTERV, launched in 1986, is a mailing-list application that predates e-mail.
One of the earliest of the modern-day social networks is Friendster, which will celebrate its seventh birthday in March. It has lasted longer than the dot-com bubble of the late '90s, and has made about the same amount of money for its investors, which is to say, none. In fact, MySpace is the only social networking site that has been reported to turn a profit; every other site, when it comes to making a buck, might as well be sitting on a floppy disk on a shelf somewhere, anonymous to the world.
The hype surrounding social networking first became really audible when the hit stats at MySpace started climbing beyond anyone's expectations. MySpace became a marketing supermarket for videographers and musicians, and attracted a whole lot of eyeballs in the process. Then Facebook hit the scene, and when it broadened beyond its college campus roots, making an e-mail address its only eligibility requirement, it took social networking mainstream. It has over 140 million active users, and that number continues to rise quickly. Unfortunately, Facebook doesn't make money.
Getting down to business, slowly
This fall, Facebook CEO Mark Zuckerberg announced that he is working on a business plan for Facebook and hopes to have it complete in three years. It's a bit surprising that Zuckerberg apparently thinks he has that much time. It's possible that when Zuckerberg comes back with his plan in 2011, the playing field will look more or less the same as it does now, but things certainly changed between 2005 and 2008, and there's little reason to think they won't shift again.
The company has tried to generate some revenue. Facebook was red-faced last year when it implemented a social tattling platform called Facebook Beacon, which notified your friends of every purchase you made. Advertisers and retailers loved the idea, but most members were outraged at the level of snooping Beacon performed. Concerns about privacy exist on Facebook, like everywhere else; the line is drawn in a different place, but it's still possible to cross it. Facebook quickly got the message and disabled Beacon; Zuckerberg apologized to all.
Follow the money
Trying to figure out how social networking sites can make money has become a small fad unto itself. Here, high aspirations may actually be something of an obstacle. Potential investors get hung up on grandiose scales -- all the millions of unique users and visits per month -- and they dream of billions of dollars of revenue. If they would scale back two or three zeros, they might improve their chances of getting something back on their investment.
The easy route for making some money is a basic subscription charge. If the roughly 140 million active users on Facebook each paid $5 per year for their page, it would generate $700 million, not a bad year's work. Some people would give up their page rather than pay anything, but $5 per year is pretty nominal -- it works out to about 1.37 pennies a day, a fact the site could easily advertise -- and Facebook would probably retain a healthy percentage of the 140 million. Any other monetization plans could be added to the site in addition to that subscription fee, as long as it didn't add to the cost for the member.
Is social networking a business?
Ultimately, the most pertinent question may not be whether social networking can make money but whether it's meant to exist as a standalone activity. It seems like Microsoft could easily build most of the basic features of a Facebook page into Outlook and give it away free as part of Windows. Goodness knows Microsoft has spent millions in the past on things that haven't made any money for it. With social networking getting the attention it does, it's a perfect stage for Microsoft, a company that historically has loved the bright lights.
Should that happen, Mark Zuckerberg won't ever have to meet that far-off deadline for his business plan. If things ever come to that, social networking won't be a business; it will be a free plug-in.
