TakeAway: Social networking sites may be popular, but they’re still not profitable …
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Excerpted from: Knowledge@Wharton, Early Tremors: Is It Time for Another Social Network Shakeout?, October 14, 2009
Experts predict a shakeout in the social networking market. Why? Consumers only have time for so many social networking sites and are likely to gravitate where they already have friends.
What’s unclear is where social networking goes from here. Experts say there’s still a lot of growth left in the sector, but a round of consolidation, reinvention and restructuring is likely in the not-too-distant future. “Clearly, social networking has caught on in a great way, but there’s still a lot of uncertainty about where all of this will wind up. The market is very dynamic.”
The upcoming round of consolidation may include a good bit of reinvention as social networking sites tinker with business models.
“The big question today is: How will social networking and social media sites monetize themselves? Turning themselves into social commerce sites will be very difficult.”
Most companies in the social networking space are still experimenting with ways to generate revenue. The Holy Grail: Highly personalized advertising and word of mouth marketing.
Social networking companies could sell applications (like Apple’s iTunes Store does), aggregate massive audiences for advertisers or target high-value consumers that are coveted by Madison Avenue. Another option: Sell behavioral data to advertisers. Smaller players can target groups that are highly coveted by marketers.
Other social networks are focusing on business uses and providing tools for advertisers and any company that wants to monitor its brand. Most social networks are likely to develop models that revolve around serving so-called “enterprise customers” — companies looking for intelligence about their products and reputation.
Indeed, the focus on business intelligence could help some of the smaller social networks thrive. For instance, LinkedIn has a recruiter product for human resources professionals, designed to find “passive candidates,” or people not actively looking for jobs who could be good hires. LinkedIn charges a fee per user for the recruiting service and counts Allstate, eBay, Logitech and Kaiser Permanente as customers.
The real trick will be finding the balance between privacy and profit. In 2007, Facebook launched a service called Beacon that was designed to track users’ activity on external sites and deliver more targeted ads. After privacy complaints, Facebook continued to tweak Beacon before ultimately shutting it down in September.
What’s likely to emerge is a social networking market where there are multipurpose sites that have vast economies of scale, like Facebook and MySpace, and niche players, like LinkedIn, that find profitable business models. “People will go with the large social networking sites, but there will be very niche communities that will also be successful. The companies in the middle will be squeezed.”
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According to comScore’s August data, the top three social networking sites in the current U.S. market are Facebook, MySpace and Twitter.
Facebook (which launched in 2004) is number one, with year-over-year growth of 125%. Facebook had more than 92 million unique visitors in August in the U.S., and now serves more than 300 million people worldwide.
MySpace, which is increasingly focused on becoming an entertainment portal as well as a social networking site, is in flux, but is still the second-largest social networking site. MySpace had 64.2 million unique users in August, down from 75.5 million in August 2008
In third place sits Twitter, launched in 2006, which had 20.8 million unique users in August — up 1,773% from a year ago.
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Full article:
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2354
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