Saturday, February 09, 2008

Trouble in the land of social networks?

In "Generation MySpace Is Getting Fed Up", Spencer Ante and Catherine Holahan at BusinessWeek report on slowing traffic and low advertising revenues at major social networking sites.

Some excerpts:
Social networking was supposed to be the Next Big Thing on the Internet. MySpace, Facebook, and other sites have been attracting millions of new users, building sprawling sites that companies are banking on to trigger an online advertising boom.

Trouble is, the boom isn't booming anymore ... Many people are spending less time on social networking sites or signing off altogether ... The average amount of time each user spends on social networking sites has fallen by 14% over the last four months ... MySpace, the largest social network, has slipped from a peak of 72 million users in October to 68.9 million in December.

"What you have with social networks is the most overhyped scenario in online advertising," says Tim Vanderhook, CEO of Specific Media, which places ads for customers on a variety of Web sites.

Besides the slowing user growth and declining time spent on these sites, users appear to be growing less responsive to ads, according to several advertisers and online placement firms. If advertisers can't figure out how to reverse these trends, social networking could end up as a niche market in the online ad world .... Social networks have some of the lowest response rates on the Web.
Please see also Mike Masnick's excellent posts over at TechDirt, "Surprise, Surprise, Social Networking Ads Suck" and "Bill Gates Joins The Growing Social Network Exodus".

Please see also my recent posts, "Targeted advertising and Facebook" and "Facebook Beacon attracts disdain, not dollars", which discuss how much harder it is to make advertising effective on social networking sites because of the lack of commercial intent.

For the opposite point of view, you might be interested in what Josh Bernoff at Forrester Research has to say in his post, "Why Social Applications Will Thrive In A Recession".

Update: One month later, Bob Cringely writes:
I am beginning to think that Internet social networking is another CB radio, destined to crash and burn.

Social networking has a lot of problems as both a business and a cultural phenomenon. To start with there is generally no true business model ... Most are vying simply for eyeballs and hoping for Google ads to pay the bills until Time Warner or News Corp make them an acquisition offer they can't refuse. That might be okay for Facebook or MySpace and maybe Linked-In, but there are more than 350 general-purpose social networks out there and I will guarantee you that no more than 5 percent of those will be still operating two years from today.

It's not that I don't see value to social networks, it's that I generally don't see ENOUGH value.

What will likely happen to social networking is that some applications will survive on a more modest basis than now ... [and] 70 percent or so of most social networking functionality -- the really useful functionality -- will be sucked into the dominant portal/search/e-mail/chat/social networks like MSN and Yahoo.
Update: Six weeks later, The Economist writes, "Social networking will become a ubiquitous feature of online life. That does not mean it is a business."

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