Social Networking is Hot, But is It a Business?

In earlier posts I have cautioned against adding online products to your magazine's brand portfolio because other publications seem to succeed at using them. There are strategic reasons for all online products but they may not fit your requirements. For example, blogs are fantastic web site traffic builders that can lift site traffic and thus rates. But trying to monetize blogs directly by selling sponsorships on them is typically much harder.

This week's Economist turns that same analysis to social networking and comes up with a similar cautionary tale:

"The big internet and media companies have bid up the implicit valuations of MySpace, Facebook and others. But that does not mean there is a working revenue model. Sergey Brin, Google's co-founder, recently admitted that Google's “social networking inventory as a whole” was proving problematic and that the “monetisation work we were doing there didn't pan out as well as we had hoped.” Google has a contractual agreement with News Corp to place advertisements on its network, MySpace, and also owns its own network, Orkut. Clearly, Google is not making money from either.

Facebook, now allied to Microsoft, has fared worse. Its grand attempt to redefine the advertising industry by pioneering a new approach to social marketing, called Beacon, failed completely. Facebook's idea was to inform a user's friends whenever he bought something at certain online retailers, by running a small announcement inside the friends' “news feeds”. In theory, this was to become a new recommendation economy, an algorithmic form of word of mouth. In practice, users rebelled and privacy watchdogs cried foul. Mark Zuckerberg, Facebook's founder, admitted in December that “we simply did a bad job with this release” and apologised.

So it is entirely conceivable that social networking, like web-mail, will never make oodles of money. That, however, in no way detracts from its enormous utility. Social networking has made explicit the connections between people, so that a thriving ecosystem of small programs can exploit this “social graph” to enable friends to interact via games, greetings, video clips and so on."

Read the whole article here ...

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By Josh Gordon -- Josh Gordon is president of Smarter Media Sales.com where he works with publishers to maximize their online and print revenue through training, consulting, and representation.

COMMENTS/DISCUSS: 2

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Good Post .. Its All About Leveraging the Aydienc

Submitted by Dave J. Iannone on Tue, 04/01/2008 - 13:50.

Good post. Monetizing social networks can be very tricky. Users don't care about ads, and the click through rates are typically horrendous. There are still the 'branding' benefits and if done adequately can have a major impact, even for smaller social networks. Look at what the campaign for the movie '300' did on MySpace to help that film's box office. That being said, for smaller social networks for publishers and niche markets, the key really is leveraging the audience you can build on a social network (which can be fairly tremendous) and have it drive traffic back to and between your core revenue generating products -- your online content, events, etc. Build the audience with the social network. Then monetize the audience you get from it either with your existing or new content.

Yup, it's about strategy

Submitted by Josh Gordon on Thu, 04/03/2008 - 10:16.

Great comments! Every print editor undestands that there is a differece between what readers want and what advertisers want. For ad supported media the "best practice" is to let your advertier's needs determine your target audience, but then let your target audience's needs determine your content. From this point foreward it is more important that your advertiers love the audience you atract than the articles you write. Your advertisers may or maynot love the social neworking section you add to your website, as long as they love the added traffic it brings. Josh Gordon

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