Social networking has weighed heavily on my mind lately. Trying to understand where things are going is a bit mind-numbing. The amazing growth and emotional fervor these sites enjoy is unprecedented. No question. The question I struggle with is monetization.
Will social networking ever bring in the big, big money? I’m skeptical.
Both MySpace and Facebook tout revenues at or nearing the hundreds of millions of dollars. Nothing to sneeze at, but not the kind of money that would make The Street giddy. I look to Google’s history for some clarity.
Until AdWords, Google was an impoverished search engine which tons of people used and loved. Pay-per-click advertising changed everything, almost overnight. Enabling advertisers to easily put text-based messages via keyword queries was the equivalent of striking gold. It was relatively risk free, ridiculously easy and, oh yeah, it worked. By being in front of someone searching “shoes,” an online shoe store could be at the right place, at the right time. To this day, it’s a money-making machine that has put billions in Google’s bank account.
Now social networking finds itself in a similar situation. Big traffic and even bigger love. Now show us the cheddar.
Banner advertising drives most of the revenue on social networking sites. And for all the recent excitement around such networks and their acquisitions, it still doesn’t tap into the masses like search marketing can. The smallest of businesses can start an AdWords account and start seeing results almost immediately. Creating, placing and tracking banner ads? Not so much.
Plus, even if a site knows that I live in a certain place and have certain interests or “friends” - which is social networking’s sweet spot - just showing me a targeted advertisement isn’t going to spark a purchase or action with any regularity. And don’t forget about banner blindness. Can news feed blindness or fatigue be far behind?
Facebook applications are genius, but will companies pay for such real estate in the future, assuming apps won’t always be free. Rival MySpace is sure to follow suite as well, and create greater pricing competition. Many will no doubt pay, just like they do for sponsored pages, but I just don’t see it striking big-time riches, relegating its success exclusively to the most tech savvy among us.
Ah hell, my brain hurts. Like most of us, I’ll just have to sit back and either watch the genius unfold or grin and bear at the eventual stagnation, or worse, demise.
August 2nd, 2007 at 3:44 pm
Joel, Monster is making over 1b/year, I’m not sure what percentage from job-postings and what from resume-search. Can you tell me a reason why LinkedIn or Facebook cannot take this market away from the big3?
The second big source can be direct-marketing: Facebook/MySpace can do very efficient demographically targeted advertising.. I guess there’s a lot of money in this market too..
August 2nd, 2007 at 3:53 pm
Can’t see jobs, or even integrating all classified categories as a panacea to riches. And there’s certainly nothing historically that would foreshadow such. Google Base *should* be a huge success. It isn’t.
August 2nd, 2007 at 4:05 pm
Maybe we should split the recruiting business in two: classifieds postings (G-base) and resume-search (LinkedIn).
If we focus on the second, recruiting is a business of trading (information about relevant) people, and Facebook seems to build a huge inventory of them. Not so complete/structured information yet, and they didn’t had time to build call-centers to sell it, but the numbers are big, and the selling operations can be build/bought later on..
G-base is a mistery to me too: I don’t know if the un-success comes from strategic pressures from eBay or from the fact that Google is too strongly associated with general unstructured search..
August 2nd, 2007 at 6:50 pm
Hrmmm …a very good question. As of now, it seems like they can pull in revenues in the $100MM-200MM range based on their rate cards. It’s decent but it’s not Google. There’s also a question of growth in that area.
I would guess that if they wanted to grow like Google, they have to get in to search. Personally, the only times I’ve clicked on sponsored links is when I used Google to make a purchase decision. If Facebook could leverage the power of social networks, combine it with search and convince people to use this to make purchase decisions then they can begin to get into the ballpark of Google.
In order to do that, though, they’d have to make a big fundamental change to their social networking model. It would have to be open so that you don’t exclude your user base to only Facebook users.
August 2nd, 2007 at 8:54 pm
The money lies in creating a more direct path to target audiences. Google is trying to find a more direct path by enticing users to use iGoogle, which sets up a scenario where Google can essentially provide targeting to the individual level. AdWords is limited to key words used for search which do not even begin to provide the level of ad targeting capability that a social network like Facebook can provide.
August 3rd, 2007 at 1:21 pm
Google Base is curious case, but it’s worth asking what Google’s motives were in launching it. Despite the lack of substantial user adoption, it may be a success from an internal perspective when viewed as a means of expanding the scope of content that can be plugged into Adwords. After all, lots of advertisers use it, even if job seekers don’t. It certainly seems that they haven’t put much energy into promoting it or creating a fantastic user experience, but is it making them money nonetheless?
August 3rd, 2007 at 1:57 pm
I was surprised to learn that the agreement to use facebook as a platform for your app allows you to commercialize it and make a profit.
If facebook’s display ads never monetize well and if they never get into a lucrative enough search agreement, my guess is that the company will start taking a cut of the profits that app developers earn building on their platform.
With so many people building so many apps, an economy can develop and facebook’s earnings can compound to who knows what level.
Just a thought. May be ridiculous. Who knows.
August 8th, 2007 at 12:40 am
Interesing. Check out this line from the facebook t’s and c’s…
‘Facebook reserve the right to impose fees at time and in any manner (Section 3)’
http://www.webpronews.com/topnews/2007/05/30/facebook-f8-read-the-fine-print
August 8th, 2007 at 8:27 am
Interesting. Thanks, Matt.
August 15th, 2007 at 10:57 am
I wonder if they’ll end up making their money from the great consumer insight they have. Facebook for example with their polls. It’s a small feature but one with interesting possibilities