Business Models Facebook Social Networking Twitter

The Social Network Business Plan

So as I mentioned in an earlier post, I’ve been reading The Social Network Business Plan. The premise of which is that the next big thing will be Social Networks built around products or services, for which there are 18 revenue channels – including subscription, conferences or “get-togethers”, and finally chopping up what people are saying and selling it to companies. He thinks that this will replace advertising and marketing and that the massive amounts of money that used to be spent on such things will flow to the entrepreneurs running Social Networks (but not Facebook).

He does have a point. My generation have grown up seeing adverts everywhere, and we don’t notice them anymore. I know there’s research in support of this, but I’m not going to take the time to look into it here. Suffice to say, it’s 11am and I walked into university this morning and I’ve spent the last hour on various websites (including Facebook) and my email. I’ve probably been exposed to 20+ advertisements, but I couldn’t tell you what any of them are. That’s not to say advertising is entirely pointless, just that advertisers need to work harder to distinguish themselves. For instance, the Sony Bravia adverts (here and here) really do make me want a Bravia TV (only I’m a student and can’t afford one) and I know that Where The Hell is Matt is sponsored by a company that makes gum – maybe Trident? I even visit the Apple site to watch the Get A Mac ads from time to time, and not just because I’m totally crushing on Justin Long.

I’ve spent about 5 months in Asia, over the course of 3 trips. And the thing that Westeners find amazing when we go over there is how the streets are lit up with bright, colorful lights all the time (not just November-January, like we do). In the middle of Dalian, China, for example there’s a big disco ball. It’s crazy! But you get used to it, and soon the lights stop attracting your attention and just become normal. It’s the same with adverts, you’ve got this whole generation of people whose attention firms won’t be able to buy anymore – they’ll have to earn it by being genuinely innovative (or finding someone who is genuinely innovative and sponsoring them).

So I don’t disagree with his premise. Advertising is going to be very different and soon, but I do disagree with his conclusions. A social network might be helpful to self-identify the connectors, the mavens (like Malcolm Gladwell talks about in The Tipping Point), those who influence the opinions of people in their social circle. But I don’t think everyone will be joining one, by any means.

A subscription model is a big part of the business plan. But of the examples given, each has a differentiation which may make people willing to pay a subscription, which I would argue not everything has. For instance, he gives the example of which is for women to talk about their gynecological problems. A subscription model may work here because women are prepared to pay for privacy, and this kind of deeply personal problem is the kind of thing it’s frowned upon to talk about on Facebook. Similarly with which is for Doctors – a subscription buys verification and privacy. There’s been a lot said given the debate on newspapers and the music industry that my generation will just have to start paying for things online, but it’s not that simple. Most likely we will pay if there’s a good reason to (i.e. we need to pay for privacy) but where they’re a free alternative, we won’t. There are a plethora of free places to network on the web, in order to convince someone to pay for something it’s going to have to be really important to them.

Tipping is another part of the business plan. TipJoy, a company trying to make a business of tipping on the internet went bust this week. The announcement on their blog is here. The most interesting bit is this one:

We strongly believe that social payments will work on a social network, provided that they’re done within the platform and not as a 3rd party. “Simple, social payments” is *the* philosophy needed to do digital payments right, but once a service groks that, they need only to implement it on their own. We’ve been the thought leaders in this space, we see the hype and excitement, and yet we know very intimately the difficulties in gaining actual traction. The only way to get around this is for the platforms themselves to control payments – then all people wanting to operate on that platform would have to play along.

So tipping may work, I don’t disagree with that. If I was very into a social network and someone gave me some useful advice and there was a culture of tipping, I would probably do that. But I think he overestimates the revenue from it. Also, something that he doesn’t mention with respect to tipping, is that whilst in North America tipping is common, expected, and a significant part of the revenue for people like wait staff etc this is not the case in other parts of the world. In China and Japan, for example, people don’t tip. I literally had a woman in China chase me down the street to give me the money back after I tried to tip her. And in the UK, whilst we do tip, we know wait staff are getting at least minimum wage, currently 5.73 per hour for workers aged 22 years and older – so we don’t tip anywhere near as much as it is normal to in the US.

Facebook is written off as a social network trying to make money from advertisements. I think he overlooks it in two respects. Firstly, Facebook has some very valuable data that they’re trying to generate revenue from right now, likely they’ll end up using the aggregate and sell opinions model, so the networks he proposes may be in direct competition with Facebook. Secondly, Facebook doesn’t rely solely on advertising. Facebook gifts are actually a significant and overlooked source of revenue. Now that developers can charge in the apps they build on top of the Facebook platform, that’s another revenue channel – in fact Facebook suggests some business models.

There is no mention of Twitter. Twitter has so much opinion and information on there, when they start cutting it up and selling it off to interested parties, it will be hard for anyone else to compete. The networks where people will pay for privacy, as I talked about above are likely the only ones with a chance.

One of the examples he puts forward towards the end of the book is a network for people interested in the environment. There’s this idea that you can run a for-profit, with an affiliated non-profit. I think some things, such as this one, work better as a non-profit period. I expect there are already non-profits out there. One non-profit social network that I’m a member of is Kiva, because I’m keen to support development. Would I pay to be part of such a network? No. It defeats the purpose.

Finally, even if you set aside the subscription model so there’s no longer that transaction overhead as a barrier to entry, often what I hear from people I talk to is a need to limit the number of social networks they’re a part of. Even with OAuth so there’s not the issue of remembering so many usernames and passwords, will people join a limitless number of social networks? I think there’s an understanding that we put out data out there and with the maturity of the model and the people using it there comes an unwillingness to do so for the sake of it. Each new social network we join has to be evaluated as to what it will add to our social media experience. This means that with time, I think it will get harder, not easier, to launch new ones.