Social Networking Sites Still Struggling With The Whole Monetization Thing

from the underpants-gnomes dept

Thu, Dec 18th 2008 6:31am — Carlo Longino

The history of social-networking sites has largely been dominated by two trends: first, no matter how popular a site seems to be at any given moment, it's probably living on borrowed time. Second, no matter how much traffic a site pulls in, it's going to have a really hard time monetizing it. While the likes of Facebook and MySpace have resisted the former thus far, the latter remains a big problem -- as it has been for some time. Given this history, it's hardly surprising to see an NYT story this week about how little success marketers are having on sites like Facebook. They're finding that banner ads get ignored (again, unsurprising), while their efforts to do "social advertising" aren't bearing much fruit. The article mentions the Facebook page for Procter & Gamble's 2x Ultra Tide laundry detergent, which has attracted 471 fans, and 9 responses thus far to the question "Your Favorite Place to Get Stained?" It's hard to imagine what the P&G marketers expected, but it really doesn't seem surprising that people wouldn't flock to affiliate themselves with some laundry detergent. While some brands do attract that kind of attention, overall, the evidence says that people don't necessarily have a lot of interest in using social-networking sites to interact with brands, while many social-media efforts by companies aren't trusted and are seen as little more than shilling.

This is a big problem for social-networking sites as they continue to struggle to justify their massive valuations with real revenues. Part of the problem seems to be the marketers' mindset and how they see social networking or blogging as some magic sauce that will instantly boost sales and gloss over bad products. The challenge facing Facebook and its ilk is twofold. The sites need to better develop their marketing offerings beyond ineffective banner ads, but do so in a way that doesn't annoy users and trample their privacy, as they'll end up doing more to damage their advertisers' brands than boost them. But the bigger challenge is changing marketers' mindsets and getting them to understand how best to interact with users online. While the sites might see their role solely as selling advertising space, they must be the ones to take a leadership role and help educate and enlighten marketers, if only to help ensure their own survival.

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Filed Under: ads, monetization, social networks
Companies: facebook, myspace

20 Comments

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Anonymous Coward, 18 Dec 2008 @ 6:39am

"This is a big problem for social-networking sites as they continue to struggle to justify their massive valuations with real revenues."

This will never happen, there is nothing to justify the price paid for MySpace for example, the valuation was faulty and no amount of "fancy accounting" is going to make them into a good investment. These are the AOLs of tomorrow . . .
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AJ, 18 Dec 2008 @ 6:43am

seems to me...
I wonder why there is not tiered service on those sites... I know my kids are absolutely HOOKED on both facebook and myspace. Give them use and a page with limited functionality for free... give them a small but usable number of 'friends' for free. Then, give them a 'gold' user option where you get, say, 500 friends to link in and spiffier features on their personal page. Then you have a platinum level with 1000 friends... etc etc etc.

A trendy way to use facebook and myspace is for commercial advertisement. You have a commercial level for those companies who want a broad audience... let them pay to get their ads out instead of the social network.

BUT, the cost has to be reasonable for a 14 or 15 year old (even though the audience spans a lot broader range). Do a dollar a month, or something easy to afford for the first level... If you gouge them, then it will certainly fail.
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- SteveD, 18 Dec 2008 @ 6:53am
  
  Re: seems to me...
  You charge end-users anything, and it will certainly fail. People will simply move else ware. Facebook's only leverage right now is its popularity, after all.
  
  Feels like a good way to start would be by finding a way to see how different demographics interact or perceive different products or brands, and sell that information on to advertises (nothing to single out an individual = no privacy issues).
  
  Normally its done with sales questionnaires, but there must be a more subtle way to approach it, particularly when you've got such a large audience spending such a great deal of time on your site.
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- Duodave, 18 Dec 2008 @ 7:50pm
  
  Re: seems to me...
  No, the tiered pay system won't work. The social networking market is flooded, and everyone would abandon sites that charge. Look what happened to Flickr and Classmates.com. They charge for premium use - and while they have certain appeal for a certain type of user, I can't see this succeeding on a Myspace.
  
  Sure Flickr only charges $25 a year, but can you see that succeeding, profitably, on a myspace level? If Myspace was charging, they probably would be expected to reduce or eliminate most of their advertising. And 14 and 15 year olds aren't going to pay $25 for Myspace and another $25 for facebook, etc.
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Eric Goldman (profile), 18 Dec 2008 @ 7:34am

They have figured out a revenue stream...
They are suing spammers on their networks and winning hundreds of millions in damages in default judgments. Now, if they could just collect...
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brian, 18 Dec 2008 @ 7:41am

ZUCKER shoulda took the $1 billion a few years ago..
and bought some land Belize..I saw an ad that said it was a great investment.
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Twinrova, 18 Dec 2008 @ 7:48am

They did this to themselves, so I feel no pity for them.
Back in the day, VALUABLE websites used to charge for "premium" content, such as solutions to problems, etc. As the web progressed, these sites were quickly put to death as other sites popped up, using advertising as a way to pay for hosting the website and allowing the content to be distributed without monetary cost to the user.

Now the "MySpaces" of the internet can't seem to adjust to finding ways to capitalize on revenue, and I feel no pity for them, especially having gone the ad route to begin with.

Web hosting costs have come down so much, a decent host plan will cost $99/YEAR. With this, there's absolutely no damn reason why websites should run ads (HINT, Techdirt!). They SHOULD give their content away at NO COST, which is the entire intent of the internet.

Making money on the web gets harder every day because people don't expect to pay for information. "Services", no matter how unique, will quickly die if there is a fee for them because someone will eventually duplicate the service and offer it for no monetary cost.

So, how does a website generate revenue successfully? By offering OFF SITE services which can be charged (selling items, consulting, etc.). The "MySpaces" of the world don't really have much to offer offline, so they continue to find ways of making money online. It's this stupidity in which these sites live on borrowed time, especially when the "audience" is always looking for something better, which is usually provided, given time.
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- Tony, 18 Dec 2008 @ 10:40am
  
  Re: They did this to themselves, so I feel no pity for them.
  "Web hosting costs have come down so much, a decent host plan will cost $99/YEAR."
  
  Yeah, you can run something like MySpace on that.
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- Easily Amused, 18 Dec 2008 @ 3:27pm
  
  Re: They did this to themselves, so I feel no pity for them.
  Yeah... I would say your estimate is a bit low...
  For an example of what those $99 hosting companies can handle, go to most any link with more than 15 Diggs that isn't a major corporation...
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  - Easily Amused, 18 Dec 2008 @ 3:30pm
    
    Re: Re: They did this to themselves, so I feel no pity for them.
    For those who are too lazy to click the link, they are spending more than 1 mill a month on electricity alone over at Facebook, and buying a NetApp server every week to keep up with demand... those run 2 mill each.
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Food for thought, 18 Dec 2008 @ 8:31am

Sponsorship
When will we see the days that websites like MySpace and Facebook will be sponsored wholly by a product? I foresee a time soon when these sites will have sponsorship no different for sporting events (ie auto races, and football games) or television shows (ie Sprint NFL Today Show).
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michael g, 18 Dec 2008 @ 8:51am

Things change...
That's any web designer & site problem. Welcome to the ever changing world of the internet.
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Anonymous Coward, 18 Dec 2008 @ 9:10am

maybe they should sell lllllllllllllloooooooooooooooootttttttttttttsssssssssss of tee-shirts...
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Cheese McBeese, 18 Dec 2008 @ 9:13am

@AJ - I think your suggestion is a strong one. People will pay a little bit for value (iPhone apps are a great example). So what is value in the context of MySpace? The ability to pimp your page and thus stand out in a crowd is value to some. I suspect the ability to see who's viewed your page would be value to many.

The revenue is out there, it just requires some very careful thought and a very low price threshold.
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A McGuire, 18 Dec 2008 @ 11:18am

South Park
Phase 1 underpants; phase 2 .....; phase 3 profit
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Xiera, 18 Dec 2008 @ 11:27am

I don't really have anything constructive to add, but surprised only one person (semi-) pointed out the department.

The underpants-gnomes department is definitely full of win.
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Anonymous Coward, 19 Dec 2008 @ 1:58am

None of you know what you are talking about.
There appear to be a lot of people commenting on a subject they know very little about. Fox Interactive Media, who's main revenue comes from Myspace is on target to hit $1 billion in revenue in Fiscal year 09, and only missed that milestone by $150million in Fiscal 08.

Myspace was valued at $4billion about 3months ago, based on actual earnings not eyeballs, which seems like a reasonable valuation when it is generating $1billion in revenue.

Please read up on your information and data before making sweeping statements like "This is a big problem for social-networking sites as they continue to struggle to justify their massive valuations with real revenues."
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Lisa Creech Bledsoe, 19 Dec 2008 @ 9:02am

Tiers are working
I think the small ($25) fee Flickr charges for Pro use is well worth it, and I would pay a small fee for Twitter too. MySpace? No. Facebook? Maybe. It seems to me like the user base on any social network, if the service is worthwhile, could successfully charge for access and bring in money.
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gene_cavanaugh, 20 Dec 2008 @ 12:55pm

Social network finances
I'm curious. The movies have always made a TON of money by simply adding a product to a movie. Certainly the movie itself was not an "ad", and the plot was not determined by the products displayed; however, if a character lit up a Lucky, the cigarette manufacturer paid big bucks for it. So, if a company sponsored home-made movies, special discussions, etc., without in any way interfering with the content, but required that somewhere in the offering, their product was shown, wouldn't that be similar? Of course, part of the "bang" the movies added was the STAR using the product, which would not apply to a social network, but isn't there some similarity that could be exploited?
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anthony bain, 20 Feb 2009 @ 5:59am

social networking & money
Before building a social network first you should think how can i make money out of it, i know facebook is an exception to the rule it just exploded on to our monitors but like all explosions theb eventually fade away and lose momentum.

Think of the money, dont be scared to ask for it and treat it as a business and any social networking site can work.

Mid March sees the launch of Bainzy, see how we have done it.... Thats the way ahead...
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