Social Networks - What’s New Here
Bill Warner Monday, December 08, 2008
The current social network phenomenon may finally be getting enough traction to become a viable business model. Since the mid-90’s there have been many attempts to bring this concept to reality on the Internet, but they never really stuck to the extent that viable businesses could be built on the concept. We used to call it collaboration and extolled the capabilities of the internet to reach people of common interests. However, the early attempts were clunky for the users, hard to administer, offering marginal value to the users, and limited in reach.
What changed? Over the last ten years many innovations have made this concept much more viable as a business model:
- Clearer recognition of the unique needs of each social network
- Search engine effectiveness and optimization
- Pervasiveness of internet access
- Integration of collaboration tools
- Technology innovation that makes the internet more accessible
This evolution of technology and market know-how may have now reached a tipping point where we are going to see the survival of the fittest of profitable social network businesses.
Who Are the Social Networks
When you think about social networks today, what first comes to mind; probably Facebook, MySpace, LinkedIn and several other social networking sites that have seemed to pop up overnight? Why do they seem so successful; probably because they have millions of subscribers? Just ask the kids.
These are social network platforms that bring people together by simply linking them to one another. Then, they are offered ways for people of common interests to get to know each other and then given tools for ongoing communication and sharing of information.
Kids and adults of all ages are on these platforms. My grandkids got me hooked on MySpace. My point is that millions of people are talking about these social networks, leading to more and more people joining and exploring what is possible. The universe from this “big bang” is still expanding.
What is Fueling the Social Network Boom
The idea of social collaboration is not really new. It has existed since computer networks emerged in the 70’s. What is new now is the ease with which social networks can be created and how effective they are in linking people together:
- Social network providers have learned what it takes to offer an effective social network experience. The last 10 years of experience have given us exciting new user interfaces as well as integrated functional capabilities that finally address the full breadth of media that users need to collaborate.
- Search engine innovations and the capability to optimize the ways that people are reached have made it much more practical to rapidly find and recruit social network users.
- Access to the internet is more pervasive than ever. In addition to PC’s, laptops and internet cafes, the cell phone is an effective way to interact on the internet now with full page views and document retrieval capability made possible by innovative new user interfaces and broadband communications.
- Within social networks, the integration of easy ways to communicate via email, voice, video, blogs, chat and networked meetings make it possible to effectively meet and work together online which was not available as little as a few years ago.
- This is all made possible by technology innovations in high bandwidth communications, continued increases in microprocessor power, storage capacity and memory capacity, and new human interfaces that make all this easy to use.
The Business of Social Networks
So, how does one make money? There are just a handful of social networks that have a large enough subscriber base to make it practical as an advertising platform. After all, how many Facebooks are there in the world, and what chance does any individual entrepreneur have in inventing such a wide spread social network? These and other very successful social networks make money on a combination of subscription fees for enhanced services over their base of free services, job posting, corporate recruiting and paid advertisements.
There are millions of social networks today that have no intention of being profitable businesses. They lay at the heart of non-profit organizations and small communities of people that need to collaborate, whether they are sports leagues, church groups, business networking organizations, educational groups, and many others. These social networks each serve a purpose for a limited number of people.
Anyone thinking about putting together a profitable social network has a big challenge. There are many business model issues to consider:
- The network has to be made up of a very large number of people that have a compelling interest to collaborate.
- The reason for collaboration has to be obvious and driven by some substantive need for regular communication and sharing of information.
- The need for collaboration has to be strong enough for them to pay a nominal amount of money to participate.
- A well thought out revenue model is needed that offers competitive prices for services that would not otherwise be available to the users. If there is no differentiation and no solid value proposition for the services, then the social network will not make money.
- Advertising revenue is not yet a proven business model, mainly because the click-through rates are not as attractive a search engine driven ads. Now with the economic downturn, advertising revenue is even harder to get. It is essential to primarily build the revenue model on a solid value proposition for services.
- The network of users has to be renewable, in that new users are generated yearly as older users move on to other interests.
- The collaboration capabilities have to meet the users’ needs and be constructed in and extendable to the latest of web technologies, like Web 2.0 and all forms of social media that are appropriate.
- Effective web-based marketing programs are needed to reach and recruit subscribers throughout the world, through effective website design and search engine optimization.
- The social network experience has to be attractive to users, they must have effective and responsive support from the social network provider and their personal information has to be protected.
Social Network Success
We have come a long way since the beginnings of collaborative networks. Technology innovation may now have gotten us to a point where a profitable social network business is possible, but basic business principles still apply. Don’t get caught in the old trap of just being cool and looking good. Make sure that the market for your social market is real and that there is a solid revenue model that will drive the profitability.
Filed Under:
Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.
There is some good food for thought in this article by Bill Warner. In fact, some of his bullet-pointed thoughts might be “borrowed” and built upon as fundamental tenets for an Orcaman Business Plan.
BTW, I know Bill pretty well, if you ever want to tap into his network or access his group of angel investors.
