The Economist: Social Networks Are Not A Business

Just stumbled across an interesting article from The Economist which makes an case that social networks, ala Facebook, Orkut, Myspace, etc., are not a business. Or rather, that the "social network" per-se is not valid as a business model in and of itself.

From the article:

Social networking appears to be similar in this regard. 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.

Of course the point here isn't to disparage the usefulness of social networks, in fact, they article goes on to elaborate on how ubiquitous social networking (as opposed to "social networks") may become (emphasis added):

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.

Coming up for air
But should users really have to visit a specific website to do this sort of thing? “We will look back to 2008 and think it archaic and quaint that we had to go to a destination like Facebook or LinkedIn to be social,” says Charlene Li at Forrester Research, a consultancy. Future social networks, she thinks, “will be like air. They will be anywhere and everywhere we need and want them to be.” No more logging on to Facebook just to see the “news feed” of updates from your friends; instead it will come straight to your e-mail inbox, RSS reader or instant messenger. No need to upload photos to Facebook to show them to friends, since those with privacy permissions in your electronic address book can automatically get them.

The problem with today's social networks is that they are often closed to the outside web. The big networks have decided to be “open” toward independent programmers, to encourage them to write fun new software for them. But they are reluctant to become equally open towards their users, because the networks' lofty valuations depend on maximising their page views—so they maintain a tight grip on their users' information, to ensure that they keep coming back. As a result, avid internet users often maintain separate accounts on several social networks, instant-messaging services, photo-sharing and blogging sites, and usually cannot even send simple messages from one to the other. They must invite the same friends to each service separately. It is a drag.

Of course this closely parallels what Om Malik was saying a while back in his Are Social Networks Just a Feature? article. Specifically, Om says "It is time to rethink the whole notion of social networking, and start thinking of it as a feature for other online activities. "

Needless to say, we here at OpenQabal agree, and are one of a handful of projects working on creating software to support "social networking as a feature." That's not to say that when OQ is finished you couldn't take it, put an instance on the public 'Net, and position it as a Facebook competitor. It's just that we think doing so would be a really bad idea, if you plan to make money.

Syndicated 2008-03-30 09:48:41 (Updated 2008-03-30 09:52:02) from openqabal