Can Social Networks Make Money?
When
they’re labeled as “social,” why do you want social networks to turn
commercial? But marketers will leave no stone unturned to milk every
Internet surfer who enters a social network—even inadvertently. But
success is miles away. Why? Because the online social networking
properties don’t have any underlying business model.
Today, the Big 2—MySpace
and Facebook—together have over 100 million global users, but their ad
revenues are pathetically low. Web market researcher eMarketer estimates
that US advertisers will spend $755 million on MySpace and $265 million
on Facebook this year. Dozens of other social networks in the world will
get only tiny slivers. Even in the entire US market that holds maximum
potential, social network ad spending is expected to stay low and
eMarketer estimates that it would reach $2.6 billion by 2012 from this
year’s projection of $1.4 billion.
True, the overall
online ad market itself is too sluggish—just $30 billion or 6% of the
global ad spending. But social networks that could succeed in quickly
attracting millions of consumers have so far failed to translate online
population to profits. So their share in the online ad business is just
4%, assuming that they’re earning a little over $1 billion at present.
Why this drought?
Mainly because marketers thought that ad revenues will be directly
proportional to the number of eyeballs. That may be true in certain
consumer categories, but not for gullible youngsters on whom most social
hangouts are dependent. But either by choice or under some compulsion,
marketers have been ignoring consumers’ behavior while selling ads on
social networks.
When these consumers
visit social networking sites, they’re least interested in displayed
ads. They’re basically part of online social utilities because they’re
offered free. And as they want to be quickly in touch with their remote
counterparts, they just don’t want to be distracted by any kind of ads.
Plus, most of them are not logging in regularly; they’re inactive. The
active ones keep hopping from webpage to webpage, without caring for
advertisers’ messages. Clearly, if social networks are about such a
chaotic scramble, number of members with them can’t be the right
indication to judge a site’s popularity.
As marketers have been
turning a blind eye to these factors, the fiscal results are lackluster.
But now commercial pressures are forcing vendors to transform and
refurbish these virtual networks to face the harsh market reality.
Traditional sites are fast adopting new tech platforms to chase
consumers with ads. Thus starts the Social Networking 2.0 era.
Mobile social networks
are among the emerging trends. Nielsen Mobile, says that the UK leads
Europe in mobile social networking. Its findings reveal that in the UK,
nearly 810,000 mobile subscribers (or 1.7% of all mobile subscribers in
the country) visited social networking websites every month on their
mobile phones in the first quarter of 2008. That reach percentage was
twice as high as it was in other major European markets—though similar
to the US, where 1.6% of all mobile subscribers (4.1 million in all)
accessed social networks with their phones in December 2007.
Obviously, mobile
players are aggressive. Nimbuzz, a mobile communications company, has
started offering an application to provide mobile users in the UK with
free calls, chat, etc. Covering 23 social networks, including Facebook
and MySpace, the solution is for free mobile VoIP calling, conference
calling, instant messaging, chat and group chat. Likewise, targeting
European customers, T-Mobile and Nokia have recently decided to promote
new Internet services and personal social communities on mobile devices.
These efforts aim to
extract some bucks from financially dormant social networks, which are
otherwise facing existential crisis. Will marketers succeed?
The writer runs a blog
at
http://mytechbox.wordpress.com
This article was written by
Rakesh Raman
for his column Technophile in The
Financial Express newspaper. It’s also available on the newspaper’s
site, at:
http://www.financialexpress.com/news/Can-social-networks-make-money/312841/0
It was republished by Yahoo! India Finance site, at
http://in.biz.yahoo.com/080521/50/6tz3v.html
Rakesh Raman
is the managing editor of My Techbox Online.
