64 thoughts on “Social Networking Gets a Sanity Check”

  1. While it would be easier to monetize, I can’t see the niche site idea working very well because users would have to sign up at several sites to cover their different interests. Facebook and Myspace’s broader appeal give them a much larger base, and it seems like a tradeoff: easier to monetize versus easier to gain users.

  2. Niraj,

    That is true, though I am betting moves such as OpenSocial etc might be a step in the right direction and making it easier for us to sign-on elsewhere.

  3. Or Ning… If niche sites are indeed the trend of the future then Ning is very well positioned. The ID you use on one network works on all of them, so users get the convenience of a single login and the ability to choose from any subset of the networks.

    I don’t know if you have to re-add your friends for each network though.

  4. Om –

    your observations points are correct, however i think you’re a little overly-negative on these companies. they ARE pulling in $1B in revenue already — for a couple of services which barely existed 5 years ago, what’s not to like? and that’s without them even really developing much in the way of e-commerce services just yet.

    i think you’re guilty of measuring them against the Google yardstick, which is probably not the right one to use here…

    true, monetization on a per-page or per-person basis kind of sucks, but there’s SUCH huge volume i think we shouldn’t be TOO hard on companies which are clearly generating a ton of usage & not a small amount of revenue.

    both have probably been overhyped a bit in the short-term, however in the long-term i think there’s every reason to be optimistic.

    that said, i do think you’re correct that niche-focused social networks & services have plenty of potential as well.

  5. Dave, while I agree (I would take $1B 🙂 ), the general perception was that social networking would take over, and valuations were based on this assumption. If that perception changes based on these numbers, where’s the massive IPO for Facebook (and others) that everybody (investors) expected? While 1B in revenue is a lot of money, it may not be the deal that people signed on for.

    Also, consider the basic proposition that you’re either going up or down. The plateauing may be a troubling sign as new channels for user attention develop (mobile?).

  6. It is only because there is no targeting in social networks. How can the advertisers and marketers tell who is viewing the page and why they are viewing that page. But users are open to targeted ads, but they also want to keep their privacy.. so it is currently a vicious cicle

  7. I agree with Om in that ‘the market has shifted its focus onto niche social networks, such as those dedicated to sports, music, automobiles and pets.’ It will be interesting to see how big players such as Facebook/MySpace will compete with sites dedicated to user’s specific interests, instead of generic. The time will come where an individual will want more than just casual conversation (chit chat) or updates on the party weekend in Vegas. Truthfully,…I believe that day has already come. It’s just a matter of time before implementation has its way and niche-focused sites rule the world (of Web 2.0 and beyond).

  8. Nice post Om. I believe the following:

    (1) OpenSocial, Ning and Flux solve the problem of niche networks requiring users to register in multiple places and remember those passwords (You already mentioned OpenSocial).

    (2) I believe you are right that “social networking” will mainly become part of existing websites, not standalone entities in the future.

    (3) I believe that the best monetization option for the advertising model is to allow users to specifically select what kinds of ads they are open to receiving.

    e.g. What would happen if I joined Facebook and I could select “autos, videogames, finance, movies” as categories?

    A user showing interest should be more valuable than trying to assume interest just because I mentioned “car” on my profile.

  9. Personally, the moral of the story is that Advertising 2.0, the google-ification of advertising does not work so well for most social networking sites. Why? This type of crowd can’t be PUSHED context-lite types of ads and be expected to click.

    What you need to do is give them reasons and contextually clear paths to engage with a brand and its products/services.

    Whether that means giving consumers the tools to pick the types of products/services they want on their pages, incenting them to place them on their pages (or share with friends), giving them clear action paths to GRAB BROCHURE, GET COUPON or REQUEST INFO or other methods, it is more of an opt-in, or consumer PULL, type of model than a push based one.

    Until that model starts to take hold, lots of confusion, waste-age of eyeballs and fiscal pain lie ahead.

    For what its worth, I recently wrote a post on this topic:

    Why Social Nets Struggle to get Advertisers to “Show Me the Money”

    Check it out if interested.


  10. I appreciate your in depth analysis Om; that is your blogging sweet-spot.

    Question: All the news today was about Facebook surpassing MySpace in traffic, yet “Facebook will take in $265 million and MySpace will bring in $755 million” and this projection is for 2008! Does this mean MySpace is more effectively monetizing their traffic? Is it because most of Facebook’s growth is in non-US markets? Rupert seems to have played the social networking wave better than anyone else, and all those rumors of Facebook investors trying to offload shares probably have good reason to.

  11. Om –

    Agree with you that monetization for all the social media sites has been based on reach / scale with low CPMs because of exploding inventory and ads that haven’t been relevant. But i think we are closing in on an inflection point where we can substitute relevance for reach with subsequently higher prices with more focused reach. The social networks are just a start: they form the basis of a user profile – interests and likes, etc. Now match that up with what a user tells their friends about all the other likes and dislikes in other content sharing sites (take FriendFeed for example) and you have a rich profile to combine with all the other behavioral targeting information collected by the Google, Yahoo, MSN ad networks. They should be able to serve up highly relevant display ads, maybe even at PPC or CPA pricing, to narrowly targeted audiences. Then we can monetize both the head and the long-tail of social media content.

    elaboration here:

  12. Om,

    An excellent article!

    Every product or service has a maximum user-base and social networks are no different. I think the marketing will now shift from attracting new social network users – to ‘grabbing users’ from competing social networks.

    Things might start getting really interesting, really soon!

    Jim Connolly
    The Tech News Blog

  13. Om,

    great article. I’ve often wondered how in the world these social networks make any money off advertising since I’ve been on them for years and have never, ever, clicked on an ad…

    …then again, in the brief two days I placed a MySpace ad through Google AdWords and received 3,000 clicks (costing me tons of money), I figured it out!

    Personally, I wish the sites would just start charging a membership fee and get rid of the “context” advertising since it just costs advertisers a ton of money with no real ROI…



  14. I think the “conversation,” as we social media people are fond of calling it, is just decentralizing and finding itself. But judging from the fact that I keep getting friended by former classmates and old friends that are just discovering Facebook, I think it is just churning users. As a social media newbie, you start with MySpace and Facebook, and then move on to something smaller and more manageable. But MySpace and Facebook still have their places as Social Media 101 tools for a long time to come. They’re gonna have to adjust their overhead –as any ongoing business does–to reflect their maturing business models.

  15. Illuminating stuff. I buy Om’s take about niche focus, particularly, based on my own travails helping start up Social Media Today’s new francophone community. One might say that French users of social networking sites use the sites with a slightly philosophical bent not characteristic of US users. French, and traditional Europeans in general (not including Great Britain market in this case)tend to assume “return on relationship” as part of the social networking “payoff” because of culture and lifestyle where this idea is an “add on” with US and British who don’t always think that social means business or don’t understand that the sotto voce of social is business. Just the way I see it from down here in Brazil

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  17. It seems social networking needs to clarify its usefulness for many users who sign-up, post profile information, post a few messages here and there and then basically leave it at that, seeing little or no incentive to spend more time in those huge communities.

  18. Q. Niraj said:
    While it would be easier to monetize, I can’t see the niche site idea working very well because users would have to sign up at several sites to cover their different interests.

    A. Nope, it’s actually the reverse. The more targetted a client base the more valuable they get.

    Check out this blog post on Spiceworks

    “Ad Supported Applications”, although this software is working on an internal browser page on your computer behind a firewall when you access the various web pages you’re presented with advertisements which make the developers money – which enable them to eat – which enables them to keep coding – which gives us even more killer features.

    Now I’ve posted more than a few times that I think banner ads are a waste of money but this is such a targeted defined audience that the value of this “segment” is extremely valuable for people trying to target to network administrators. The value of this network grows exponentially for every new user they have install the application.

    The target audience here is network managers who managed it budgets, because you know exactly the demographic of who is viewing their advertisements the cost to purchase these banner ads from spiceworks is about 5 to 6 times the high end average website banner ad.

    Hope that example gets my point across.

    Dean Collins

  19. Somebody needs to bring social networks together in one place and advertise there. Sorta like Trillian or Meebo for IM – a centralized interface where people can access their MySpace, Twitter, Facebook, etc.

    @Niraj was correct in saying that scattering people out into niche networks isn’t gonna make it any easier to monetize. It’ll dilute their attention spans when they login to yet another service to check. They won’t be primed for being advertised to.

  20. Om,

    I think you hit the nail on the head with your comment about the value of niche social networks. The key to monetization obviously involves finding a way to hyper-target ads to people who are predisposed to be interested in those particular products or services, and niche sites make it much easier to do that.

    However, it’s too early to discount the ability to do similar targeting within the big networks, as well. Developers thrive on a challenge, and you can bet we’ll create a way to help brands more accurately target within all the social networking sites – to help them know who’s doing what (in a way that keeps all data anonymous, of course). That’s the fun part.

    — Ian Swanson, CEO & Co Founder of Sometrics

  21. Social media *shouldn’t* be ‘monetized’ really… we need a decent open-source network (perhaps wordpress type model?) where the community is the network… and the individual owns the content. It’s all about connections… why does it have to be a business model? I want to be a millionaire as much as the next guy (well maybe not quite as much as Tom Anderson or Mark Zuckerberg) but I would prefer the internet to have a soul.

  22. Om, you are on the money here as always.
    One that that you should have covered or maybe you will in the future is how social software can make money or save money for companies outside of the marketing space which we all agree is just that big yet.
    This is why I have been preaching for years that we need to get the social networks to work inside the companies where you can help companies collaborate better among themselves as well as with their clients and partners. This is what is all about for me.

  23. RE: social network portability

    Tantek talked about social network portability a while back (2007). Which ended up resulting in OpenSocial. Which is great in theory, but no one is using it – or should I say making it easy to use for the general web geek.

  24. Interesting article. Well it was bound to happen sometime especially with Facebook being overvalued by so much with nothing to show in terms of revenue generation. The only way Social Networks could make money would be through paid membership but this would bring down their numbers hugely, but advertising certainly is not going to bring in the bucks. Niche networking is the way to go especially with LinkedIn’s latest round of funding.

  25. Om — Great post. I think you’re absolutely right about the niche sites. In this discussion context is a very powerful thing. Social features, and the applications that power these, have proven to be an extremely effective way to drive engagement and website growth. Open Social, etc., remove the barriers for web publishers and developers in this respect.

    Why the mystery though in making this happen successfully? At the highest level, the value of social media to a web publisher rests in the data, in this case the social graph. Just as any customer research provides insight to drive improved user experiences, editorial programming, advertising, marketing, etc., so does the social graph data–arguably in a more powerful way than any other means (factor in engagement levels online).

  26. There seems to be a lot new sites popping up out of nowhere but they all have the same ideas. Theres site called jippidy.com which i thought was interesting because not only are they a social network but also a business directory.

  27. Some interesting observations here. Maybe the top of the social network mountain is nearing and as soon as it levels, you are going to see the networks who can’t monetize drop off. Niche networks are going to be able to pull down the higher CPM rates because of their targeted audience, but niche networks will also have a more difficult time gaining exposure.

    I work at a professional networking website, konnects.com, that has built communities around industries, locations, political interests to take advantage of common interests and not just throw every person into one big social network that can’t help them.

    The next three years will be interesting for web 2.0 social media.


  28. “Over-complicated software and websites are causing users to switch off worldwide, costing tech companies billions in lost revenue. However, a small group of us are trying to get the point across; customer usability is beginning to find support with the biggest and best. Bottom EVERY ONE OF THESE SITES HAS THE WORST SEARCH IMAGINABLE.

    Why in the world wouldn’t they use a semantic engine; it’s unbearable.


    I can’t tolerate the searc!

  29. Niche social networks are a welcome addition to the web. Because they are more narrowly focused, they are better able to serve the needs of their community.

    The large generic social networks like Facebook and Myspace are great for keeping in touch with friends, but small social networks offer much more – people just like you who share your same passions.

    Qnahealth is a new social network for health related information and support. It’s designed to be friendly and easy to use and is focused around users asking and answering questions and sharing their experiences and knowledge.

    We invite everyone to take a look as they explore their online health information options.

    We welcome bloggers!

  30. The days of BIG socail networking sites are over. No more facebooks or myspaces will come to past but as stated by another comment smaller more personal site like goofbucket.com will thrive. Much like now is also the time to buy stock with the market so low, now is also the time to join smaller networks and make them your own

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