I read a Business Week article this morning which suggests that the current MySpace generation is becoming fed up with the ad bombardments on the site. They seem to be spending less time on MySpace because of it. A quote from the article:
The MySpace generation may be getting annoyed with ads and a bit bored with profile pages. The average amount of time each user spends on social networking sites has fallen by 14% over the last four months, according to market researcher ComScore. MySpace, the largest social network, has slipped from a peak of 72 million users in October to 68.9 million in December, ComScore says. The total number of people on such sites is still increasing at an 11.5% rate, but that’s down sharply from past growth rates. “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.
I don’t really know if we are now seeing a decline that marks a steady downfall of the current social networking sites. There seems to be contradicting numbers around. TechCrunch, for example, showed in January that Facebook is still growing in traffic, while MySpace is going down. According to Mashable traffic is increasing and they use a totally different measure, using the traffic measures from one of the largest content delivery networks Akamai. According to Akamai, they have delivered 5 times more data over their network to social networking sites in the last year. this suggests that people are spending more time on social networking sites.
And then there is the information Google provided for last quarters results. It suggests that Google has trouble monetizing ads on MySpace:
CFO George Reyes said social networking advertising is not monetizing as expected. When questioned further Sergey Brin, president of technology, said: “We don’t talk about individual partners or anything like that.” Brin noted some things were tried that didn’t pan out. While Brin won’t talk about partners it’s fairly obvious that MySpace is an issue. Google is obligated to pay at least $900 million in minimum revenue guarantees to MySpace through 2010. Later, the question was revisited again. He noted that Google also has Orkut and other social networking partners. “We have an incredible amount of this inventory,” said Brin. “I don’t think we have the killer best way to monetize social networks yet. We have had a lot of experiments (and some disappointments).”
So what does all of this mean? Well, for starters, monetising social networks through ads is hard. If Google, best in class, is still struggling with this then you can imagine others will have similar problems. I believe that ads in itself provide little value to the users in social networks, and for that reason it is a faulty business model. Essentially the same thing happens on a web page as on TV. People will ignore ads when the ad itself does not provide the user any value in his actions. Ads work in search because you are looking for something, but do not work when you are interacting with a friend. The ad itself doesn’t provide extra value to the interaction. It is as if you and I are having a drink in a bar together, and the bartender keeps drawing our attention with commercial messages. It’s annoying, and most likely, we will simply go to the next bar to grab a beer without commercial interruptions.
SocialAds launched by Facebook have, and will, experience the same problems. Although the underlying mechanisms might be smarter (Facebook watches you and your friends like a Big Brother and uses your profiles and interactions to match ads) it essentially doesn’t solve the real problem. There is no room for advertisement when people interact. And their first Beacon attempt wasn’t a success either. Facebook got an overwhelming negative response mostly because people didn’t like it that the feature couldn’t be turned off or that it would invade privacy. In my opinion, the beacon system is build upon a wrong assumption. it assumes that mimicking the “advice from a friend” on-line will help increase sales or better targeted advertisement. As I have said earlier, the interaction you and I might have when I tell you about a new car I bought isn’t the same as the beacon message in my newsfeed that says that “Alexander just bought car X on site Y”. In the first example there is trust, talk, emotions, gestures, the opportunity to agree or disagree with each other, in other words true interaction. In the second case there is a “computer system” that tells my friends I just bought a car. Not the same, and not enough value to help my friends to buy a car too.
I believe for this reason current most popular social networking sites will either evolve into something better, or disappear all together. I don’t know if the figures I started out with are a measure that show this decline in popularity, but I’m betting on something that is a constant factor throughout. Social behavior. People have jumped on the social networking train to be part of its success. But now that the hype is over, the question becomes if these sites provide the user real value.
Building and looking at other people’s profiles is fun at first but becomes tiresome pretty quickly. I see this all around me. People joining a network, spending a lot of time to build a personal profile. But after a while the fun wears off, and less time is spend on that activity. So what do these people use social networks for? Interaction of course. They use the chat functionality to chat with their friends, send them messages etc. the profiling and all the applications that help you beef up your profile aren’t interesting enough. And I’m betting that current social networking sites do not provide the user enough value to keep him on board while the advertisement pressure is increased. Maybe new initatives like Friendfeed will do a better job at it.
What are we left with then? Interaction. It is always about interaction. People love to interact. Social networking sites will have to evolve into social interaction sites where friends can use any tool needed to interact with each other. Through feeds, sms, tweets, IM, e-mail, voice calls, video messages, you name it. The web entrepreneur that can think of a web business model that monetises user interaction will be the winner. Providing value can always be monetised. Social networking may be declining, social interaction won’t!