I’ve been trying for a while to figure out how the new wave of social media sites fit in to the economy. Late the other night, I think I finally got my mind around it. It happened while I was watching a Seinfeld re-run (it was the one where George pretended to be a marine biologist and ended up accidentally saving the whale into who’s blowhole Kramer lodged a golf ball - one of the all-time classic episodes).
Facebook, MySpace, Friendster and the like are really nothing more than the Internet equivalent of television shows. They are for pure entertainment purposes, part of out pop culture. One is hip and the place to be until a new one comes along, and then everyone migrates. Loyalty doesn’t really exist. Now, before I get bombarded, I totally get the actual potential value of these type of sites, Andrew McAfee does a great job of evangelizing this.
However, I don’t think most people use the sites in this way. To most people, it is a purely recreational activity. Enter all your information, keep in light touch with people you don’t have the time to truly stay in touch with. Studies have shown most people, when presented with a choice to pay for use of these sites, would not do so. Sounds like network television to me. Would I pay to watch new episodes of Grey’s Anatomy? Likely not.
So if people aren’t willing to pay for these sights, then how can they be a valuable contributor to the economy, and receive multi-billion dollar valuations? Advertising of course. Much like Seinfeld or Grey’s Anatomy they present a wonderful audience for advertisers. Of course they can be even more targeted than television ads, hence why advertisers are salivating over them.
So what does it mean? I think it means they can generate oodles of revenue during their run (like Friends). It also probably means that unless they figure out how to develop a long term business model that people are willing to pay for (like ESPN for TV, maybe Ning for the web) the life span of these sites is probably limited, much like a network TV show.
It also means that advertisers will ultimately want to rate them in ways other than page views, and number of users. Advertisers have become incredibly savvy with the network TV medium, and will do the same with social media sites. They know that some of them will be hits, like Facebook and that others will ultimately end up the Gossip Girl of the web.
So before we get carried away with how these social media sites are going to revolution the way we do business, let’s try and put them in perspective. Advertising mediums that provide users with entertainment, not new economic models…
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