industry

This page considers business aspects of social network services.

It covers -

• introduction
• web 2.0 content generation?
• business models
• and challenges
• a Friendster bubble?
• studies

    introduction

As the following page indicates, online soft networks can attract substantial traffic. MySpace for example boasted over 65 million unique visitors during a month, with many supposedly staying on the site for nearly three hours during that time.

Online soft network services can thus involve tangible investment in infrastructure and in associated maintenance, as users are fickle and often demanding. Unavailable facilities, system errors and delays will erode the profile of a site operator and encourage members to abandon a particular service in favour of the latest 'new new thing'.

Reductions in a site's online population (or merely the frequency with which they visit a site and the time spent at that site during visits) are of critical concern for most site operators, particularly those expecting to generate substantial revenue through sale of advertising or through opportunities to directly sell goods and services.

    web 2.0 content generation?

Elsewhere on this site we have questioned hype about web 2.0, a rather vacuous concept that encompasses what is claimed to be 'new', social networks and user-generated web content such as blogs.

Online soft networks have been hailed as the outstanding web 2.0 sites (even as "the second coming of the net") because they may embody collaborative tagging (aka folksonomies) and because consumers create the content on those networks, in contrast to 'old media' that delivers content on a top-down basis. (Offerings from Hollywood and other 'dinosaurs', of course, tend to be more engaging than much content from individuals.)

One pundit thus commented that

These sites are the reality TV of the internet, it's incredibly cheap to produce the content.

    business models

Social networks have essentially used three business models.

One is simply exploratory - there is no cost to participant, with operators burning capital in the expectation that there will be a future return from selling enhanced/ancillary services, data or advertising.

A second is subscription-based, often in conjunction with advertising. As with dating services, low-level participation is free but access to particular facilities (eg searches, chat and uploading of photographs) requires an annual or other periodic payment. Participants may be exposed to advertising, relevant or otherwise, and may be invited to pay for ancillary services - with the network implicitly serving as a teaser.

A third appears to assume that the network as such will not generate substantial revenue but will funnel members into commercial seminars or purchase of professional software and information.

Underlying all models is the likelihood that the operators are engaging in datamining (whether at an aggregate or individual level) on a commercial basis and that they are getting a sense of likely markets for new services, gather demographic data about a potential market and observing the shape of interactions rather than relying on surveys. Some of the 'professional' services indicate that data storage, messaging or other facilities might be offered in future.

Major SNS are diversifying. MySpace for example announced in late 2007 that it was signing artists to its own record label, developing online video series and introducing the MySpace Celebrity content guide. Its MySpaceTV was second to YouTube among most-visited internet video sites.

    and challenges

Wired noted in 2006 that

MySpace clearly isn't the Net's next great cash machine - not yet, anyway.

The most obvious problem is that the millions of profiles that are MySpace's main real estate violate just about every rule in the marketing handbook. The site's great strength - users' freedom to design their pages any way they like - is an advertiser's nightmare of scrolling, blinking, browser-crashing chaos. (And that's when it's not patently offensive.) The most teen-centric advertisers - Circuit City, Verizon, McDonald's - have been willing to wade into MySpace's black lagoon. Others are happy to take their quest for eyeballs elsewhere.

But the business flaw runs even deeper. In an online advertising market increasingly dependent on the Net’s ability to precision- target ads, MySpace offers no sure way to hit the bull's-eye. Google decides which ads to show based on search terms and page content. By contrast, a typical MySpace pageview doesn't offer much of a clue about anything. What conclusions can you draw when kid A bounces onto kid B's profile and leaves the message "Wazzup"? That's why a top-priced Google ad - say, one that appears with search results for the word "refinance" - is valued in dollars per click, while a MySpace ad clocks in around a hundredth of a cent per view. In theory, all those millions of lovingly, often exhaustively detailed personal profiles ought to make it possible to deduce a user's interests. But no one knows how to do it, certainly not on an industrial scale.

     a 'friendster bubble'?

The viability of some of the models is problematical, with -

• particular operators accordingly changing terms & conditions
• new entrants failing to achieve sufficient scale to offset churn by members or the cost of advertising (important when the absence of compelling content means member acquisition is not driven by word of mouth)
• departure of some niche operators
• questions about prices paid by 'old media' in colonisation of the net.

As with dating sites, low cost of entry and perceptions of market opportunity have meant that there are now a large number of minor networks chasing the majors, often without the polish of the large operators.

Friends for example promotes itself as "where singles come for freindship, dating, and romance" [sic] and asks

Looking for friendship, romance, or that special someone to take on a date? Well look no furhter [sic] because Friends is the place you'll find what you are looking for!

The proliferation of networks, few of which appear likely to make a profit (or merely to survive long enough to get to the IPO stage), has led observers such as Andrew Orlowski to talk of a 'friendster bubble'.

In hyping the value of MySpace in 2006 Wired shrilled that

MySpace, the unruly child of a dodgy Net marketing company, energizes every corner of the News Corp. constellation. In doing so, it could ensure the company's survival in the new era.

Platforms have long been the key to digital power, and the Internet only extends their scope and grip. eBay built one for retail transactions. Google's organizes information. MySpace is a platform that gives ordinary people a place on the Net to interact with one another - and provides an expanding set of tools for doing so. With enough people, it just might be the ticket to selling media in a world where audiences, not corporations, call the shots.

How? Think of MySpace as an 80 million-screen multiplex where YouTube videos are always showing. Or an infinite radio dial where the DJs spin only the records they want to play. There may not be a working band or musician left in the English-speaking world who doesn't have a MySpace profile. Ditto comedians, artists, photographers, and anyone else trying to catch the public eye. Why is Disney promoting Pirates of the Caribbean: Dead Man's Chest on a News Corp. site? Because that's where the viewers are. And that's what a platform is: the place you have to be.

MySpace is doubly important to an old media armada like News Corp. as it navigates the infinity of distribution channels created by broadband, mobile devices, and search engines. News Corp. has been spinning deals with iTunes, two-minute mobisodes of Prison Break, and download agreements with terrified local affiliates. But none of that answers the question that gnaws at Rupert Murdoch and moguls everywhere: Without the old network certainties, who or what will perform the essential function of a media company - that is, grab and hold attention on an industrial scale? MySpace offers an answer.

A skeptic would note that Wired was making similar claims for the marriage of AOL and Time Warner. Such skepticism was not apparent in most media coverage of the October 2007 announcement that Microsoft would pay US$240 million for 1.6% stake in Facebook, presumably bolstering its search service and online ad network service in the face of competition from Google.

    studies

As yet there have been few comprehensive studies of the social software industry and no major accounts by insiders. Much of the writing is anecdotal and distinctly triumphalist.

Three points of entry are Danah Boyd's Sexing the Internet (PDF) and Connected Selves blog and the Online Business Networks Blog.

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