Interesting reflection on financial side of social networking. Was at the techie Flag and Bell pub crawl last night (at the Exchange Bar in China Twon to be precise) and was talking about this subject. I think the key is in the niche use of social networking, but then I would say that as that’s what I’m interested in: medical imaging professionals (eg radRounds), accountants (eg ION) , Brazilians (eg Orkut), and social networking:

“Someone, somewhere is supposed to be raking it in from social media—but we never have figured out who that person is (unless it’s Mark Zuckerberg). We see the CEOs with their millions, and everyone wants in on the wave of the future, either in an IPO or working for the company behind the social network, or establishing their own.

“But is there really any money to be had? Last week, social networking darling Facebook, still a privately-held and VC-funded enterprise, allegedly leaked its financial projections for the year. The outlook isn’t exactly what you’re hoping for in a company that is supposedly worth $15B..”

Hmm, something to think about. Set timer to how long I come across a solution to this online, thanks to the collective genius of people..

Surprise, Surprise, Social Networking Ads Suck

from the as-expected dept

One of the questions that came up last week in Edinburgh was whether or not social networking sites were really the big moneymakers they claimed to be. In the discussion, what we agreed on, was that the social networking sites had done a good job in doing an “upfront” monetization, with MySpace getting a guaranteed ad deal from Google and Facebook getting a guaranteed deal from Microsoft. However, all the details suggested that on the backend things were pretty ugly. It’s not hard to figure out why. Ads work on Google because people are looking for information. They do a search, and if the advertisement shows information that helps with the query, that makes everyone happy. However, when it comes to a social network, usage is quite different. People aren’t looking for information about products — they’re looking to communicate with friends. In that environment, ads are seen as an intrusion — which is the exact opposite of ads in a search world. That explains why Facebook was so focused on its Beacon offering, which was designed to try (rather unsuccessfully so far) to make an advertisement about communicating with your friends.

With all that said, I estimated that within a year, advertisers would begin to back away from social network advertising, unless some new, more effective, mechanism was found. I figured it would take about a year, because the mindset of advertisers would still be focused on just getting ads on these “hot properties” and it would take some time before they realized that no one looked at the ads. Apparently, my estimate was wrong. Brands are already staying away. At least, that was a major point behind Google missing its earnings estimates. It seems unlikely that this situation will get much better, unless social networks really do come up with a different form of advertising. They need to recognize that simply throwing up ads doesn’t work any more. An advertisement can’t be intrusive. It can’t be annoying. It needs to be relevant and wanted.