What’s the revenue model for social networking sites?

December 14, 2008

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.

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5 Responses to “What’s the revenue model for social networking sites?”

  1. DavidB:

    Or maybe its time for us non fans of these sites, who have wobdered why people are so interested in wasting their life away on them, will sit back and laugh. And not shed a single tear if any of them die off.

  2. Abimbola Akanwo:

    Interesting post Michael. Thank you.

    As a fan of Plurk and Twitter, the struggle with viable revenue generating means for these sites concerns me.

    Both social network sites provide valuable social service and potentially global interactions.

  3. CuriousJorge:

    Social Networks are focused on the wrong thing. Zuckerberg keeps talking about how his only focus is on growth, and not revenue. That this is what all great internet companies have done.

    But I would disagree with that assessment. Google’s a great example. Growth is a byproduct of developing a real solution to a real problem. His focus is all wrong. Its as if he things he just needs to bring people into the grocery store, and THEN he can buy produce for them to buy. He’s putting the cart before the horse. Social Networks have it all wrong, their focus is skewed. Rather than trying use their abilities to bring people together to help them actually socialize in the real world, they’ve created a product meant to replace it. They are, if anything, creating more of a problem, not helping solve one.

    Ive actually heard of a site that is in stealth mode at the moment, but is supposedly, SUPPOSEDLY, figured out a real revenue model. And from what I heard, its actually very interesting. Really. But in the end who knows, we can only wait and see…

  4. Anup Date:

    If i have any social networking site then how should I collect max. revenue as well as which sources are avilable for that and how should I will implement this things im my site.
    please guide me.

    Mr.Anup Date

  5. Gary:

    The next big social networking site is just around the corner guys but this has a difference. I will keep you informed

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