It’s a common question in social networking circles: what is the revenue model for sites like Facebook, Myspace, Twitter, and Plurk? That is not a question that has been answered with any authority by any of these sites. All are struggling with the question of how to turn a profit in a marketplace where users are much more interested in friends and socializing than they are in advertising.
Advertisers are also interested in the answer to the question. According to Randall Stross in the New York Times, some advertisers have been working hard to find an answer, and are not having much more luck than social networking site owners. As an example, his article cites the problems that Proctor & Gamble has had in devising a winning marketing strategy for Facebook.
Proctor & Gamble has tried both standard advertisements and the promotion of Facebook groups seeking fans or followers. Neither avenue seems to have produced excellent results. Users have shown little interest in clicking on standard advertisements, as predicted by Web guru Seth Goldstein, who has said that a banner ad “is universally disregarded as irrelevant if it’s not ignored entirely.”
The only way that the P & G groups on Facebook have show any success at all is in the cases where they have spent significant money on promotion, such as their Crest Whitestrips campaign. Proctor & Gamble utilized free concerts and free movie screenings to attract members to that group, eventually drawing 14,000 fans. When the promotions stopped, however, the fans started to trickle away. Neither Facebook nor Proctor & Gamble offered any solid data on generated sales. Seth Goldstein again: “Advertisers distract users; users ignore advertisers; advertisers distract better; users ignore better.”
If an advertiser with the power of Proctor & Gamble combined with social networking leader Facebook are having problems trying to produce positive revenue, how difficult will it be for smaller advertisers and smaller sites like Twitter and Plurk? Especially in the middle of a difficult world economy, what sort of revenue model will emerge to allow social networking sites to turn a profit? Sites of this size cannot continue to operate forever without revenue. It may be time for devotees of these sites to become as interested in revenue models as they are in their numbers of friend and fans.