The Viability and Monetization Potential of Social Networks

Is there money to be made in social networks (SN)? Well if you are interested in SN’s and are a developer or an entrepreneur building tools that leverage SN’s in the web 2.0 world, or for the mobile arena, then that is a very important question for you. As an entrepreneur myself developing products for the mobile presence space, I am constantly quizzing myself with the single question “Can the business model work or sustain in this changing eco-system”? Well, if you are interested in finding out more, you should set aside the last Monday of this month (July 28th 2008) and come to the Mobile Monday event at the Samsung Experience Center (10 Columbus Circle, NYC) for an expert-panel discussion. Lubna Dajani of Stratamerge™ and Co-founder at mobilemonday-NY, will be moderating a panel of experts, entrepreneurs and others with the discussion centered on the subject “The Viability and Monetization Potential of Social Networks”. She does plan to share some of her initial findings of Stratemerge™’s study on social networks and debate the findings and potential market implications.

Current methods of monetization come from two areas. One is the advertisers, who flock to the sites despite the anemic response rates. The second method involves the user who pays for some premium service. SN operators, who rely solely on ad based revenue models, have to convince their customers that there is continued value in advertising on these networks.

A recent BusinessWeek article titled "Generation Myspace is Getting Fed Up" revealed certain shocking advertisement metrics; Response rates of 0.04% (on SN’s) compared to a 0.2% in general on the web. Response rate numbers like 0.04% to 0.2% cannot continue to be an acceptable ROI number for those who spend money on advertisements on the web. One industry executive put it right when he said, "it’s really hard to make money when the click through rate is that anemic". Read my article "Ad Deluge on our senses" written earlier this year. Another report in "VentureBeat", reported flat to falling ad revenues for June 08. What is interesting to note in that report is the pubmatic's ad price index of web publishers by site type. One can clearly see that SN sites have the lowest ECPM's among the other site types. You can find more details on the report at pubmatic's site.

Will consumers pay to play in a SN? The value of the extended social network fades over time unless there is a continued exchange of relevant and contextual dialogue. One has to ask the question, “What is my network’s NET-worth”? How exactly am I benefiting by participating in the SN’s? SN’s will need to continue to provide overall value to the community and unique value to each user. If this duality is not satisfied, the users will leave.

In my personal opinion, as the world moves toward mobile gadgets and phones, factors such as relevance and context become more important. Desktop centric SN users’ initial euphoric experience of finding and reconnecting with old friends is usually followed by information overload and eventual disillusion. The ad model will also have to change and provide users with a meaningful experience as opposed to pure product promotion. It is imperative that new applications provide a platform for intelligent information delivery, one that provides immense value to the user in their daily activities.

SN sites will also have to control spammers and unwanted business solicitation that irritate users. Twitter (a microblogging site), a service that I use, is an example where this happens. Many businesses hide their real identity, get accounts on twitter, try and get people to follow them so that they can spam them with the irrelevant material. As for me, my current rule is to periodically scan my followers and delete/block those who have no profile information. I try and control what’s relevant and contextual to me. Recent reports by bloggers and other SN site users have evidenced the fact that some of the SN application sites are resporting to spam themselves in an effort to increase their user base leaving a very bad user experience for the end user.

SN’s will have to create new forms of attention aggregation and inform, entertain and allow for fulfilling content consumption to effectively provide a platform for monetization.

Simplicity, will be key to success with Mobile Applications

These days there is a lot of buzz about the newest applications that are available or coming for the mobile phone. Hundreds of companies are getting venture funding for developing the next set of applications for the mobile device. Much of the focus here is on delivering fragmented applications that take the user away from the core phone use. Any application developed for the phone has to consider the core phone use and be designed specifically for the limitations of the device with respect to the form factor and usability. Fact is, typing on the small key board makes it more difficult for people to have to enter a lot of information or click through many levels of menus to get the information that they require. Applications need to keep power consumption in mind. As much as the battery life has improved, graphic intensive applications are draining them already. One of the fundamental issues that need to be accomplished is that the software for the mobile device has to be designed from the device out, not the desktop/internet in. It is not about having the internet on your phone. The application designed for a mobile device should allow access to all the information that a person normally wants at their fingertips, at the time that they want it, without having to search for it. Tie in location, and time and context and my mobile phone should do all the work for me. I don’t want coolness of an application to drain out the battery and keep forcing me to tether myself to a plug-point frequently.

On the other hand, the current crop of mobile social networking platforms do NOT enhance interpersonal communication or reduce the clutter of asynchronous communication. They only add more distraction and noise and completely drown out meaningful communication. Recently I have talked to some Myspace and Facebook users, who claim to have over 800 contacts. I probed further to note that the core group of people that they communicate with is very limited are listed on their mobile devices and after a while the interaction with all these contacts on facebook and myspace also gets limited. Now translate that to mobile. Would you really put up with more noise on your mobile device? Ask yourself if the unbounded network that mostly becomes irrelevant over time is what you really want to use the device for. Recently I saw an ad for Facebook on an iphone; Novelty YES. Usefulness ZERO. What personal value does that add to anyone’s daily routine, especially on the mobile device? Does having access to Facebook on your mobile device really enhance personal productivity? A “boredom-response” application does not enhance productivity.

Yahoo! also announced onePlace™ (to be released Q2 – 08) claiming that it brings together all your interests, passions and important information into a single location, creating a rich, highly personalized experience around it for you. What will that do to power consumption on the device if it has to constantly bring loads of data to your device?

Other mobile widget apps offer to take web based content from a variety of sources, restructure the data and then push so called customized content to the phone throughout the day. All they do is offer yet another fragmented application of force fitting the web based information infrastructure onto the mobile device. Relevance and context are once again left far behind.

It is very important to note that coolness of an application is not necessarily monetizable in the mobile world. Ability to provide value to the general user and designing with respect for the form-factor of the device is imperative. Connecting relevant people and the pertinent information behind them is what is needed. Successful applications for the mobile world will be those that keep it simple and relevant.