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Where’s the Social Network Money?

Posted by Nick O'Neill on June 13th, 2008 4:47 PM

Among all the discussion of the opening of the social web, one thing continues to be a sticky issue for social networks: the lack of a revenue model. While there is advertising revenue being generated on social networks, it is still a fraction of the amount being generated on sites like Yahoo! and Google. Om Malik points out that the lack of a solid revenue model comes with continued signs that the social networking space is slowing domestically.

While there is continued growth abroad, it is much harder to monetize foreign inventory. As such, the social networking industry is in an interesting position. Social platforms have helped generate more inventory but it has also made it more challenging to monetize that inventory. There are people that have developed creative ad campaigns but unfortunately that’s not filling their entire inventory for an extended period of time.

While Facebook and MySpace have been working on targeted ad solutions to help increase their effective revenue generated per active user, there is still too much inventory and extremely low CPMs for the majority. Either social network inventory will continue to attract cheaper advertising or a new advertising model will be developed to increase the effective CPM.

Other variations of advertise include attempts at monetizing “engagement” but really nothing has been developed to increase returns. Among all the buzz, the limited domestic social network growth means that it’s time to start focusing on new solutions for revenue generation. Do you think the industry will find any new solutions or will social networks continue to generate less valuable inventory?

Posted in Social Networking
  

This entry was posted on Friday, June 13th, 2008 at 4:47 pm and is filed under Social Networking. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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    While the problem of monetizing engagement persists it's interesting to note that Social MMORPG games are making tons of money on virtual goods and subscription basis. A few of the low key MMO games such as Habbo Hotel are rolling it in and their interface isn't much beyond facebook or myspace. Looking at how myspace has a Games section; I don't think it's far off to think that these social spaces will move towards a more virtual area where individuals can pay for goods or experience. Even if a subset of the total users on these networks were to get involved it would mean a large inflow of revenue.
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    Seems like a lack of creativity and innovation to me.

    Mo Kakwan had something there with the virtual goods idea. I can only assume what people on say, Facebook are making with widgets that let you buy virtual things for friends. But given the amount of these online products I've seen strewn around friend's profiles I think I'll assume they are doing fairly well.

    Another classic way is premium memberships.
    How about promoting other people's products for referral money?
    You could host your own kind of lottery or contest that people pay for tickets for.
    And cell phones, like the iPhone seem to open up many other opportunities too.

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