News Corp famous move in acquiring MySpace early in the social networking market is a superb case study of how social networks can produce economic returns for their owners. Rupert Murdoch reports that MySpace is “on track” to pull in $800M in 2008. Facebook, which has only started monetizing, is north of a $150M revenue run rate. Most of the revenue created for the network owners has been largely driven by advertising income generated from ad placements in their networks within user generated content areas. As previously reported many other brands are jumping into the social networking arena for fear of missing out on both the significant growth of the space and the additional revenue opportunities the mediums can bring them.
On the other side of the coin are models where users actual generate economic return, in this case that would be Second Life, where more than 800 users spent over 1 million Linden dollars, or about $4,000 in one month, buying virtual property from others users. The models for user generated revenue are still early in there development however as the market further matures there are some interesting models being developed based on exchanges of products and services between users. Additionally there are developments for networks where users will actually share in the advertising revenue with the operators, thus motivating users to join and to populate the site with interesting content.
Money attracts the masses:
When you look at the two models, operators making money and users making money, which model would attract the masses? Let’s consider the fact that much of what builds value in a social network is user generated content. That being said one would expect users to migrate to networking opportunities that reward them economically for their time and effort populating the network. The technology that enables the processes has become a commodity which in many cases is being given away free to entice users to set up their own social network, i.e. Ning, Ziki and a host of others. But the free network model is aimed at providing economic gain to the operators from advertising revenues. So while the medium of social networking is deemed as value by the users, given the mass adoption rates, the next shift which will accelerate adoption is providing users with models that generate economic return for their participation. A natural migration of human behavior, money attracts the masses.
Given that this model is already emerging the next major shift will come from user creativity in content creation. Content opportunities will be segmented by topics, industry and geography, just look at the blogging world to see the type of content segmentation which has already emerged and many blogs are using the advertising model Google provides to generate income, although minimal. When you combine blogging with advanced social networking technologies you create a new medium and one which accelerates the power of both existing mediums. Add to this advanced broadcasting capabilities and new models for video, both live and on demand, and the exponential curve of creativity that creates an economy points to a clear shift that will create the next major disruption of media, economics and relationships.
Enter an Exchange of Connectivity, Products, Services and Advertising: Convergence of technology that enables users and operators to generate economic value through the exchange of products, services and advertising while leveraging “relationship connectivity” will become the new paradigm that will ignite new markets. We will expound on the models, the players and the timing later but for now just think about the logic and natural progression of these dynamics. You should conclude “We’re not in Kansas anymore Toto”.
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