Where are social networks going? What’s the trend in revenue models for these sites? How does this affect those who want to start a niche social network? I just discovered Bernard Lunn’s provocative post “The Fork in the Road for Social Media,” thanks to my Seattle friend Robbin Block. Lunn is skeptical about the viability of either the ad or subscription model for social networks. “Neither is easy.” Because the ad model is problematic, it’s not easy to monetize social networks, he says. “All we are seeing today is weak CPC [cost per click] rates. The overall numbers look OK because the audience is so large and the cost of audience acquisition is so low.” The alternatives are social networks as walled gardens or public utilities.
Walled Garden Business Model
Lunn foresees that some big social networks, like LinkedIn and MySpace, will be able to follow the “walled garden” model, keeping members WITHIN the site with varied news, entertainment and applications. And mainstream walled gardens will be extremely profitable, presumably earning revenues from ads, subscriptions and the like.
Utility Business Model
For most others, however, Lunn envisions a mass-market utility model, working primarily through API (application programming interface.) He defines this model as “social graph + communications tools.” Unlike the current trend of getting an application or links to it into a closed social networking website, the mass-market utility API will be about “getting the social graph OUT of the utility and INTO your application, for some pre-defined cost.” Imagine if you, an owner of a social network, were paid a fee to send users with specific demographic or interest profiles OUT of your network and TO another site or application. (Update: see Jeremiah’s post about how Facebook Connect “extends further into the web –beyond their walled garden.”) Lunn’s post has engendered 44 thoughtful and varied comments to date. Read the back and forth if you want to delve deeper. What do you think about Lunn’s vision of social networking’s future?
See all 18 Posts in This Series
How to Create a Social Networking Website Series has 18 posts on various aspects of this topic.