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Social Networking; Bubble or Bankable?

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, I can be reached at www.TheKillerPitch.com

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