Friday, March 27, 2009

The Future of Social Networks

Social networks are still in their infancy. So far they have focused entirely on growth but not at all on profitability. They are paying their bills with venture capital which will eventually run dry. Now they must focus on finding ways to monetize the service and start generating profits.

For example, LinkedIn was built from the beginning with a subscription model for revenue. I have no idea how many people are paying members of Linkedin but at least the revenue possibility is there. On the other hand, Twitter has no path to profitability that I can foresee. All their plans for targetted advertising will likely fail to generate enough revenue to sustain their business. In part, this failure is caused by their open API and their incredibly limited feature set, both of which spur others to innovate on the Twitter service. The vast number of offshoot web services based on Twitter is staggering.

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However, hard fiscal reality will eventually set in. Unless these social networks find a road to profits, they will eventually die out. That is why I foresee vast consolidation within the social networking space in the next few years. Those who can show even the smallest profits will benefit from additional rounds of venture capital financing which they will use to acquire other social networks. This will grow their existing base of users and allow them to integrate other technology and functionality. Those social networks that offer neither a large, untapped user base, new technical innovations or a robust infrastructure will simply vanish.

The real benefit of social networks comes from increased interconnectedness. Two examples:
Social networks are enabling a truly global community that allows us to work together and share wisdom across geographic distance. In short, social networks have helped to make the world a smaller place.

Fifteen years ago, we could never have enjoyed this exchange! The proof is in the use of the technology.

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  1. Yes Louis, this technology does make the world a smaller place; and it also makes it a more transparent one, both within nations and between them.

    However much some non-democratic national powers may try, they will never again be able completely to shut out information on what happens in other parts of the world, and that's a good thing.

    On the other hand of course not all the info on the web is, shall we say, strictly accurate and complete. Nor are we always sure from whom it is really coming.

    Ethical issues aside (and they can in reality never be!), this does leave a commerical opportunity, in that subscribed contributors, who have registered and who provide genuinely sourced information, may become a premium product on the web.

    I guess the next business issue is then how to convert this 'validating at source' into a cash flow and a customer benefit which is saleable, whilst also sticking to the emphasis on quality and a reliable offer.

    Perhaps as yet we don't even really know who will or can pay for what sorts of general info and linkage on the web, and / or how to make these paid for services avaiable in other ways??

    (I'm not a business technology coach, so will have to give up at this point, but maybe you see where I'm coming from..?)

    Best wishes,

  2. I completely understand you. What you are talking about is the development of a personal credibility ranking system. For example, on eBay you can easily check a sellers ratings to determine if they are trustworthy. A similar rating system for individuals would be very useful.

    I have always argued that one of the keys to Web 2.0 was credibility. Quality content was able to rise to the top based on the word-of-mouth (word-of-click?) generated by those who choose to spread your content.

    I will spend some time considering this concept. I will post a new article later on with my conclusions. Thanks for the comment Hilary! Always good to hear from you.