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No social network has ever made it as a public company

We’re a bit late posting this, but this is a great article in WaPo by Bo Peabody ’94:

The standard social networking business model relies heavily on advertising. As millions of members poured into Tripod, my investors and I thought the advertisers would follow. They never did. Advertisers need to be sure that they are reaching the right audience with their message. They have more assurance of this on search engines such as Google or content sites such as WebMD, where information is controlled and organized, and to whose profits investors have flocked. But on social networks, users can post anything they want. In one meeting with a top advertiser, I was asked to pull up a random Tripod member page. What I got was a picture of someone’s condom collection.

Almost 15 years later and as one of the Web’s largest social networks, Tripod generates the same advertising revenue in a year that Google does in an afternoon. The bottom line is that advertising does not work on social networks because social networks are not media businesses. Rather, they are communications businesses. So, how about charging users for social networks, like telephone companies do? We tried charging users at Tripod, and many others have tried it since. It doesn’t work. There will always be another service that will do it for free, and even if there is a fee charged, the amount of competition forces that fee to be so low that it never amounts to much revenue.

Instead of expecting profits that won’t materialize, the entrepreneurial community should instead operate social networks as not-for-profit organizations. Wikipedia has grown phenomenally with a not-for-profit business model, and while Wikipedia has its problems, its fate is in the collective hands of its users rather than in the hands of media companies or the stock market. Facebook and Twitter should enjoy the same comfort.

Read the whole thing here.

Further commentary from Ethan Zuckerman ’93:

Bo argues that Wikipedia may demonstrate the possibility of running a critical service as a non-profit community effort… I’d broaden that argument somewhat – services like Facebook and Twitter are emerging as critical pieces of social infrastructure. It may be worth thinking of them as public goods. We know a lot of different ways to provision public goods – states maintain them using taxation, private entities build them and charge access fees, communities build them and rely on user support, NGOs provide services and use a hybrid of user fees, donations and foundation support. I don’t think it’s crazy to think that this might be how we choose to build social networks in the future… or perhaps if any of the tools we rely on becomes less reliable.

EphBlog, as always, is ahead of the curve – we’ve never even imagined making any money!

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#1 Comment By frank uible On October 5, 2009 @ 1:14 pm

You morons, don’t even think of giving up your day jobs! Hear me, David?

#2 Comment By David On October 5, 2009 @ 1:17 pm

I hear you, Frank. Back to the gRindstone . . .

#3 Comment By Ronit On October 5, 2009 @ 1:27 pm

I suppose we could run ads… there is a whole sleazy industry of private college counseling, test cramming, and essay writing services who might be interested.

#4 Comment By JeffZ On October 5, 2009 @ 1:46 pm

I disagree with his premise at least as it relates to Facebook. First, no social network has ever had nearly the reach or cultural impact at Facebook. So many people have so many friends on the site, and have invested so much into their pages (all their photos posted, all their social groups, etc.) that it would be very cumbersome to transition to another site, so to large degree, it is as captive an audience as you could hope for on the internet. As with any network industry, the more people who join up, the closer it becomes to a natural monopoly as other folks have less incentive to try a different platform.

Second, as anyone on Facebook has testify, the ads on the site are becoming ever-more targetted towards individual users preferences. The preference-based technology is already eons better than it was during Tripod’s early years, and will only get more narrowly tailored over time. I think there are a LOT of advertisers who will want to target themselves towards people who join particular social groups, list particular movies or musicians as their favorites, and on and on. What other advertising platform gives as much insight as Facebook into the very specific preferences of the end-users?

Twitter I am more skeptical of, but at least for Facebook, it is VERY easy to see how that site will be one of the most profitable advertising-driven sites on the web.

#5 Comment By Ronit On October 5, 2009 @ 1:51 pm

@JeffZ: Actually, the fact that people are so dependent and invested in Facebook is kind of scary. What happens to all those notes, photos, contacts, etc. if/when Facebook goes out of business? Do they go down the memory hole? I’d feel much more comfortable posting on a user-supported social network as Bo envisions.

#6 Comment By Dick Swart On October 5, 2009 @ 1:52 pm

Ronit,

Certainly there are some legitimate recognitions for life experience!

http://www.youtube.com/watch?v=DUCZXn9RZ9s&feature=PlayList&p=95FDF0F9D1FE864C&playnext

#7 Comment By Ronit On October 5, 2009 @ 2:00 pm

I recall a recent comment from an undergrad who said that the vast majority of college related internet time by current students is currently spent on Facebook. Before Facebook was invented, students were more heavily invested in sites like WSO (and other forums) as well as their own blogs/diaries/livejournals/homepages. The fact that Facebook, like the Borg, is sucking up all of that time and content in order to repurpose it for market research is kinda sad.

#8 Comment By David On October 5, 2009 @ 2:02 pm

Which would suggest that we need an EphBlog presence on Facebook . . .

I set up our initial Twitter account, but Facebook is a mystery to me . . .

Sort of like middblog

#9 Comment By JeffZ On October 5, 2009 @ 2:03 pm

I’m not making a value judgment, just disagreeing with his premise that Facebook is unlikely to end up being a highly profitable enterprise. Although I certainly don’t see this as an arena for government intervention as he appears to suggest — terrible idea.

#10 Comment By Ben Fleming On October 5, 2009 @ 2:08 pm

Speak for yourself. My master plan involves turning EphBlog into a major cash cow. Foie gras for all posters!

#11 Comment By Ronit On October 5, 2009 @ 2:11 pm

@David: It would never work. People are fine with subscribing to our RSS feeds, checking the homepage daily, and following us on Twitter. But when you “Become a Fan” (ie, start to follow updates from) something on Facebook, that fact gets added to your lifestream and shared with all of your friends, ie they will see an update saying “so-and-so just became a fan of such-and-such”.

While we have plenty of current students as readers, my understanding is that EphBlog is, like porn, something you’re not supposed to publicly acknowledge reading.

#12 Comment By JeffZ On October 5, 2009 @ 2:12 pm

Ronit is probably right, but there is no harm in setting up a Facebook page, takes about a second.

#13 Comment By Jr. Mom On October 5, 2009 @ 2:13 pm

*comment deleted
JM

#14 Comment By David On October 5, 2009 @ 2:29 pm

Is this working? The folks at MiddBlog seem quite competent when it comes to technology. If they have over 100 readers who find it useful to become Facebook fans, isn’t it likely that we would as well?

When I first set up the Twitter account, it seemed really stupid. It now appears to be a success, and not just because we have at least one trustee follower . . .