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Crappy businesses

Bo Peabody ’94 has an extended followup to his Washington Post piece about social networks from Oct. 2009. An interesting overview of the challenges faced by any web company in the communications business vs. the more easily profitable information business:

Facebook And Twitter Will Always Be Crappy Businesses

Possible objection: he might be extrapolating a bit too much from his experience with Tripod.

(h/t Antone Johnson)

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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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