Social networking sites like Youtube, Facebook, MySpace, and Twitter (the Web 2.0 bunch) are not making money. Recently, The Economist wrote about their business model which is, well, not working much:
Web 2.0 still had only one business model, advertising, and the Valley was refusing to admit that only one company (Google) with only one of its products (search advertising) had proved that the model really worked. The older internet firms, Yahoo! and AOL, were doing their best to grab a piece of the action. But the “next big things” were selling negligible advertising, often on one another’s sites. Not one of them has become an advertising success in its own right.
A suggested alternative is for them to make money through the interactions of their users (I don’t know why, but I find it a bit unsettling):
While today, these may not look like great businesses (which hasn’t stopped investors’ willingness to fund them), I’m convinced that the daily interactions of their vast memberships–and their users’ willingness to share their interests, tastes, relationships and intentions, and the massive amounts of data around users’ behavior–will eventually lead to substantial revenues and profits.
These discussions have got me wondering whether we might not be wrong in thinking of the sites in terms of how much money might be made from them. Don’t get me wrong, I use some of them, and I find them very useful, but I think that we should not throw away the idea that they might in fact not lend themselves to being turned into money-making tools.
I did not mean to imply that social networking sites should not be making money, and I did not wish to imply any distaste for money-making. As a person who uses them, and who would like to continue doing so, I would like them to make money so that they can continue operating. This post was meant to suggest that they probably would not make money because their model for generating revenue is largely based on advertising, which, as I noted, is currently not working. Another option would be to charge users for using the sites. I personally do not think this would work because people still view them as a sort of commons, therefore paying for their use might not exactly sit well with the users.