SNS Profitability

filed under Social Netware · 2 comments in the original

As the venture capitalists pour more and more money into the ever-expanding crop of Social Networking applications and service providers, many outsiders are wondering if we're re-living the bubble-thinking of the 90s. As these discussions progress, more and more individuals are starting to examine the potential revenue models and viability of such solutions.

What will be the winning model? Is it viable at all? Opinions vary, to say the least.

Last month, Christopher Allen provided his advice to SNS, regarding business models:

Business models for social networking services is going to be one of the biggest issues. Even those social networking sites with lots of money behind them are going to have difficulty because there are so many.

The paid subscriber model is probably dead until some of the VC funded startups go out of business. Advertising can be a good model, but be careful not to make it obtrusive -- remember, Google has made good money with very simple ads.

If you don't have VC funding, find ways to co-opt partners -- build from the beginning support for Google AdSense and Adwords, Amazon APIs, etc. If you are small, consider federating with another company. Figure out what you can do to differentiate yourself from both your competitors and partners.

Don't be evil.

Source: Life With Alacrity, "My Advice to Social Networking Services"

I agree that the wide range of choices and complete lack of usage costs creates a virtual black hole where revenues are concerned. More recently, Chris Shipley (Source: Social Software Web Log) picked up on this sentiment in his weekly newsletter. He remarks that social networking "eludes a business model that makes fundamental sense". He further notes:

The value is in actively working the network to your business benefit. Whatever the reason, I now feel that I am part of an ecosystem of business contacts that, when properly respected and leveraged, can deliver value to me and to the members of my immediate network.

Source: Wisconsin Technology Network, "Social networks: Readers respond"

This sparked a great deal of commentary from users, most of which addressed the merits as opposed to the revenue models of the companies. Scott Allen chimed in with details from his Social Networking Guide that showed several examples of companies generating not only revenues but sometimes profits.

Yesterday, the Social Software Web Log reported on FindProfit's forthcoming analysis of the SNS space. There analysis aims to cover:

What do the recent acquisitions of Lavalife by MBRS and ZeroDegrees by IACI mean for the industry?
What are the next companies to likely be acquired?
With venture capital flowing into social networking companies like Friendster and Google’s Orkut in beta stage, is the sector already diluted?
Are companies simply “reverse-engineering” portals by building out online communities and then adding bells and whistles? Didn’t the portal concept already fail once?
Is TWX’s social networking play through its ICQ unit a test of something bigger to come? Or, is the company treading slowly to see if revenues can actually be realized by this latest online phenomenon?
Will social networking become a valuable mainstream corporate tool or will it remain something limited to the “hip” online crowd?
When will YHOO and Microsoft’s MSN get into the social networking mix?
Will Terra Networks’ (TRLY) plan to reinvent Lycos as a social networker fail?

Though I am optimistic about the space as a whole, I am not sure that the current crop of non-enterprise systems are setup to generate, in any meaningful manner, a sustainable revenue stream. For example, if Friendster decided to charge just $5 a month to herd your friends, how quickly would the novelty air off? I'm drawn to believe that the outcome would be similar to that of a short burst of pepper spray in a crowded room.