Making money from your friends

"Social networkingi websites like Facebook and MySpace have been among the most successful business ventures of recent years.

Facebook alone has 50 million members worldwide and is now valued at £7.5bn.

Inevitably, imitators have sprung up with variations on the theme, eager to tap into this lucrative market."

http://news.bbc.co.uk/1/hi/technology/7153637.stm

An interesting comment from the BBC, especially since the article then goes on to discuss some of the problems facing social networking sites in terms of actually generating any income.  It is far from clear at the moment that the market is lucrative (except for the few CEOs riding the venture capitalists' excitement).  A key phrase is "now valued at".  By whom?  Based on what?  It is almost certainly not based on actual profits.

Facebook have recently had to make a very public climbdown over their efforts to turn their members in to a revenue streami.  The BBC article above discusses another attempt, Yuwie, that is trying a different approach, whereby members earn a percentage of the sites advertising revenue based on their activity.  The creator of the site, rather naively I'd suggest, believes that they have systems in place that will counteract attempts to game the site with automated scripts to increase earnings.  Another aspect not talked about is that of course as the popularity of the site increases there are ever more people wanting a share of the pie.  How much advertising can you cram in to a social site before you drive your members away?

Ever since the Web started to come to prominence in the mid-nineties there have been promises of riches founded on advertising revenues.  With the exception of Google, that mega advertising agency masquerading as a search engine, it is highly unclear whether anyone has yet to find a workable model for this.

The holy grail for such sites is to be able to provide a service that it is so valued by their members that they actually want to pay for it.  But with the market flooded with alternatives, and little to choose between the functionality it seems unlikely that anyone could make that play.  So we will continue with the payoff between how much users value the service versus how much they value their privacy.  At the end of the day servers, coders and bandwidth cost money so there has to be a rationalisation in the market.  When that happens perhaps other business models may become viable.