The Future Of Social Networking was the topic of a panel at Microsoft's ReMIX Silicon Valley. Will social networks consolidate into a few big players like Facebook and MySpace, or will it splinter into thousands of special interest social networks? The opinion of the panel and audience was split.
What about the financial success of social networks? FastCompany published a timely article about Ning raising $60M at a $500M valuation. Beebo recently sold to AOL for $850M. Facebook recently raised more money at a $15 Billion valuation. Valuations are one thing...profits are another. Sometimes the correlation between the two requires creative math.
The future of social networks is an interesting, and potentially very lucrative, question to ponder. Will there be a few giant networks or thousands, even millions, of special interest social networks? It is interesting to note that Facebook started out as just a network for Harvard students and alumni. Mark Zuckerberg quickly discovered that other schools wanted a Facebook too. Schools were added slowly and you had to have an email address with the school domain name in order to join that Facebook network. It was a cozy social network for college students and alums to stay in contact...and express themselves. You know the rest of the story. Facebook allowed a few companies to have social networks, then opened the floodgates and let anybody in.
Ning, and others, believe there will be millions of smaller social networks based on special interests. Ning reportedly has 230,000 social networks on its service. Other social network players include Microsoft Spaces, Beebo, MySpace, iMeem, and even services like Flickr, Seesmic, Twitter, and various blog networks.
Do page views equal profits? It seems clear that both big social networks and small special interest networks will continue to grow. The distinction may be that only the big social networks will gain the "critical mass" and "audience demographics" to be financially successful. Not all page views have the same financial value for advertisers.
A penny for your thoughts? I talked to a Facebook App developer at the ReMix conference. He told me his app is generating 300 million page views per month. Wow! Then I asked what kind of CPM (Cost Per Thousand) ad rates he was getting. He shrugged and said somewhere between $0.02 and $0.05 per thousand. That pencils out to between $6K and $15K of advertising revenue per month for those 300 million page views. Pretty good for a couple of young hacker/coders with very low overhead, but not the kind of business that commands million/billion dollar valuations.
Other industry insiders at the conference said they see CPM rates of between 10 cents and 50 cents per thousand for social networks, but it can go much higher ($2.00 to $5.00) for highly targeted demographics.
Is Web 2.0 financially viable? A small moderately successful software company can generate $12M in annual revenues by focusing on a narrow niche market. What would it take for an advertising based Web 2.0 company to generate the same revenues? Lets assume a $2.50 CPM rate. To generate $1M in monthly ad revenue you would need 400,000,000 monthly page views. Hmmm...how many web sites or services generate that kind of traffic?
So, what does the future hold? Social networks are clearly a hot area. We are in the early stages of evolution. Facebook is here to stay, but other approaches and models may emerge and be even more successful. The monetization of social networks is also in the early stages. Will the current valuations prove out? Remember a few years ago when some people thought paying $580M for MySpace was insane? It looks like a pretty good deal now. Friendster is an example of an early leader that went in the other direction.
What do you think? What are your favorite social networks and Web 2.0 services? Who do you think will be the winners? Leave a comment and join the discussion.