Deep Currents

The current Technology Review is packed with interesting discussion of social networking sites. Their cover story brings up the issue that social networks aren’t making much money on ads. Why is it such a challenge? Three reasons:

- Few users pay attention to ads on social networks since they’re too busy socializing and they didn’t show up intending to find or buy any product

- The information is present to offer very tight targeting but the bar is high for even targeted ads to distract users

- Carefully-tended corporate brands don’t sit comfortably (in the eyes of their fretful tenders) next to social networks’ unpredictable and often low-brow content

These are good reasons to wonder whether a real business model is possible. One more is their walled-garden architecture and another is the faddishness that danah boyd describes beautifully: “It’s supercool when all of your friends go there. Then all sorts of other people come in. Even if the pub doesn’t start feeling physically crowded, it starts feeling socially crowded when your ex is at the other end of the bar talking to some creep who brought his fellow gang members. How long until you say, ‘Enough–I’m outta here’?”

Why all the hype? The ad spend remains a tiny fraction of the total outlay for online ads and that fraction is dominated by US firms. But there are more eyeballs on these sites than you can shake a stick at, enough to account for 20% of media consumption, and the technology remains young and plastic. Perhaps Facebook will sell services like the ability to give digital gifts. MySpace saw $800 million in revenue in 2007, presumably from advertising. Perhaps there’s a long tail of niche services that users will pay for. The air might smell of bubblegum, but that’s rarely been enough to keep money from chasing dreams.

Written: June 24th, 2008