Cross posted from Fast Company Buzz
According to popular lore, Joe Kennedy got out of the stock market just before the crash of 1929 when his shoeshine boy started giving him stock tips. Kennedy figured if shoeshine boys were in the game, then there must be a bubble. Today it seems like everybody including the proverbial shoeshine boy is jumping on the social networking bandwagon. Bebo, Classmates, MySpace, LifeKnot, Facebook, Twitter, Ecademy, Konnects, Friendster, Ning, the list goes on and on. Even FastCompany.com is a social network. But do people really know how to convert these companies into profitable business models, or is LinkedIn’s recent billion dollar valuation just more evidence that we are seeing Bubble 2.0 in the social networking game?
For all the talk about the power of social networking, how many “next big things” have crashed like the 2000 dot-com bubble? Today it’s Facebook that has the buzz, but I remember when Friendster was the next big thing and now I can’t even remember my Friendster username. LinkedIn claims 23 million users, but how many of those users are active? Better yet, how many people on all the various social networks just joined because somebody told them to and they really have no idea what they’re doing there? When people are lining up and joining just because everyone else is doing it, that’s a sure sign that mob mentality has taken over and a pretty good indicator that we may be in a bubble. Furthermore, many companies admit that they don’t know how to convert users into money. Twitter is getting more buzz these days than even Facebook but they still don’t seem to have a profitable business model. I’m sure somebody will step up and buy them, but even the deep pocketed buyers and investors of these companies admit that the social nature of the network makes effective advertising difficult. Even if the user numbers keep growing, will it matter if nobody can convert them into buyers and dollars?
For social networking to be a legitimate business model, somebody out there had to know the secrets of reaching these users and making money. And since Fast Company Buzz is all about finding out whose doing what and what’s working, I talked with the CEOs of two companies that are riding the bubble all the way to the bank. Michael Berkley CEO of SplashCast Media, a company that distributes branded content channels in social networks, explained how his company creates effective and profitable advertising on Web 2.0 platforms like Facebook. Mike said, “If you want to advertise to the social media crowd you need to make sure you do a couple of things:
1. Unobtrusively integrate brands into entertainment channels. For example, Red Bull sponsored a Ryan Sheckler skateboarding channel with a co-branded skin around the player and virtual product placement. They had clickable Red Bull cans in the video that brought up Red Bull product info
2. Give consumers a compelling reason to share the resulting branded content with all their friends. This typically means wrapping social games around the content, such as friend-vs-friend trivia contests about a particular actor or band, etc.
Tony Zito of MediaFORGE, a company that distributes widgets from traditional banner ads, added, “Advertisers need to make a true commitment to engaging the end user in a conversation. And once they learn what’s compelling to proponents within social networks, advertisers need to keep it simple and not try so hard.”
While SplashCast and MediaFORGE are making money from the social networking craze, it’s interesting to note that they aren’t technically in the social networking business. Instead, they’re building their companies by servicing the networks, much like Levi’s made a lot more money selling jeans to the gold miners than most of the miners ever did digging for gold.
So what’s the bottom line buzz? Is social networking bankable or just another bubble?
Fast Company Buzz is featured on the Fast Company home page every Wednesday. If you have a buzzworthy scoop, send it to me at frandao@gmail.com and join the Fast Company Buzz blog
Replies | 3 Total
June 25, 2008 at 5:29pm by Daniel Ghinn
Social networking has been around since the start of time. The difference today is that thanks to technology and the worldwide growth of the Internet, we can all connect and interact much more quickly. This makes for rapid growth in popular phenomena such as Facebook, which is simply tapping into the way people like to interact.
It's also true of course that the way we interact is shaped by the technology available to us. Consider for example how the telephone first changed the opportunities for instant communication. Only today my daughter came home from school and asked me if she could telephone her best friend - who she had just spent the day with at school.
So is social networking a bubble? No way! But the way we choose to network changes all the time. We always have been - and always will be - influenced by our peers. That's the power of today's online 'social networking' applications, that they tap into our fascination for telling the world what we are up to.
Is social networking bankable? I think yes, more than ever before. For thousands of years, social networking has allowed people to tap into their network of friends and associates (their social network), learn from them, exchange ideas and maybe do business with them.
Today this still happens as we share ideas with a potentially much wider network of people, many of whom we only know online, possibly not by their true identity, and whom we often judge based on others' 'ratings' (as we might do when evaluating a buyer on ebay).
The real potential winners, though, are the brands and organizations who facilitate today's online social networks. They know us better than anybody. Even as I write this comment, Fast Company learns more about me and the things I get excited about. Later today it will serve me targeted advertising based on its growing knowledge of me.
That's surely good for everybody: good for me, because I see less irrelevant advertising; good for Fast Company's advertisers, because they get to target more effectively; and good for Fast Company because it gets to sell a highly targeted media channel to its advertisers.
Media owners and websites will come and go, for sure, but people were created to interact.
Before the first ever human interaction took place, Somebody said:
"It is not good for man to be alone" Genesis 2:18.
September 16, 2008 at 8:01pm by Patrice-Anne Rutledge
In order to profit from social network advertising/marketing, you first have to analyze your audience and target the right sites. Second, you need to understand that the most effective social networking campaigns revolve around building relationships, engaging with others, and developing solid word-of-mouth marketing. If you want your campaign to succeed, make it focus on human interaction. The companies that follow these two "rules" are the ones who are going to reap the benefits of social networking, and not those that just chase fads and try to plaster their names all over the social web.
January 10, 2009 at 4:47am by Sergei Kokot
I really have my doubts about the bankability of social networks at this stage of development of this phenomenon. On one hand, the profitability of most existing services is questionable. Most of them still survive because they are strategic investments for image purposes (or simply because of the "others have already gotten one, how come we don't" mood prevalent among large Web portals), not because they're making a ton of money. General purpose networks have more "dead" members than active participants, folks who only visited the service once and lost interest or never remembered they registered in the first place.
We are a team of Web developers currently producing classifieds software. During our strategy brainstorming sessions, we keep coming across the idea of getting a social network tool of ours and market it to diversify. And every time we seem to reach one and the only conclusion: we already swooshed past the time when every website owner had wanted to have his/her own social network, when huge and growing networks were being bought by companies like Yahoo! and the likes for amounts far exceeding their profits (if any) and development costs/investments. There is no reason to have a system of our own developed because we wouldn't feel right selling software to people who won't be able to make any money off this concept.
The only true means of monetizing the investments in social networks is via advertising of various kinds. Another typical revenue generator, paid services, are not too popular, and are being looked at funny from the vast majority of active visitors. A not-so-recent scandal in Live Journal, where cancellation of the free basic account that had no ads raised hell in the community. Similar feud is going on in a Russian-speaking Odnoklassniki.ru (Classmates), a multi-million member social network for the Russian-speaking high school graduates that has recently introduced a paid membership and a few paid services and is now facing a multi-stage boycotte from its fans.
Overall, with a few dozens of well-established social network brands and concepts fighting for visitors, and a truckload of wannabes on various stages of development, plus new networks appearing daily, there's little chance that one additional network will ever make it all the way up, or even close to that.
However, there are a few possible exceptions to that rule, and these are, close communities (religious or military groups), hobbyists (coin collectors, etc), industrial or specialist networks (truck drivers, dry cleaning professionals). These categories, having established their own social networks, will have a guaranteed audience that's glued together under one great and favorite goal (come up with one to catch their attention). Another plus of this set up is that it'll cost a lot less to develop, market and even get popular provided that the idea is right. One thing that one has to keep in mind is ensure that development and maintenance costs don't make one regret one's ever bothered.