Social Media in the experimental business model stage
I'm getting a fair amount of buzz for my post over at the HBR site entitled Social Media, the Billion Dollar question. The basic argument I make there is that the whole social media phenomenon has some late 1990's Internet bubble characteristics that are a little disturbing from an investor/observer point of view. It's interesting that even as Facebook falls below its offering price that the other darlings of the social media world – Zynga and Groupon for instance – are also facing a decided lack of investor enthusiasm.
Social media, like many of the epic transformations that came before in the way we connect and communicate, is undoubtedly a force that will upend many of the ways we do business. What isn't clear yet is the business model that will monetize those social network connections. I doubt that it will be advertising, as the intrusion of advertising into a social mix hasn't yet proved compelling, particularly in the mobile space which is increasingly where people are doing their social media socializing. Until there's a reason individuals would lust after something they would pay money for delivered on a social site, I'm not seeing the profit streams. It's a little like Napster, which was transformative but which didn't really have a profit model behind it. In the wierd way things work, the vigorous response to Napster by the record companies and their difficulty controlling the free content eventually created the marketplace opening for Apple's music business. Not that the recording studios liked the idea of giving Apple so much power, they just liked it marginally better than the Napster "free" model.
So, speculate. Where would you pay money for social connections? As a general rule, where they provide you with access you couldn't otherwise get (LinkedIn and job hunting is a good example, with many of the functions of traditional headhunters being replaced by the information on the web site). Or where there is some exclusivity (think acceptance to an Ivy League school). Or where the information you could get goes beyond what your own ties can deliver to you. By definition, though, these things aren't part of the fabric of a highly democratic social network.
In addition, I think a lot of people are kind of over the wonderment stage of the Facebook experience. If most of what is posted there isn't all that interesting or compelling, eventually people will find other ways to spend their time. As the first adopters of Facebook now head into their late 20's, the risks of posting and sharing will rise and the thrill of just hearing from one's contacts will in all likelihood start to wane. It will be interesting to see how the network responds to a maturing, increasingly jaded, member audience.
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