The Economist misses the point on social networks – they are platforms not comms tools

This post is a response to a recent article in the Economist about social networks entitled Everywhere and nowhere, and subtitled Social networking will become a ubiquitous feature of online life. That does not mean it is a business.

I have been meaning to write it for a week or so now and was prompted into action by Emily Melton, one of my DFJ Menlo Park colleagues who used the article as the basis for a talk she gave to the DFJ Network on the future of Web2.0.

The article was inspired by AOL’s recent acquisition of Bebo for $850m. It’s main point is that social networks are like (or will become like) webmail and instant messaging. Tools that everyone uses, but nobody makes much money out of.

One thing is for sure, which is that social networks aren’t making much money today, at least in the context of their valuations. By way of evidence the article quotes Sergey Brin on the difficulties Google is having monetising Orkut and their deal with Myspace, and reminds us of the failure Facebook had with Beacon. The chat I have heard about revenues on the main socnets backs this up – Myspace apparently has a topline of around $900m a year, Facebook $150m and Bebo $6-8m in the twelve months prior to acquisition. (If anybody knows different to these numbers please shout.)

However, as the title to this post suggests, I think all this rather misses the point. For me the real value in social networking is not the communications tools but as platforms for other applications. I have made the killer point before, namely that the social graph information held by socnets means you can make much better applications. Some of these have been developed by the socnets themselves, but the majority will have to come from third parties, which is why everyone is following Facebook’s lead and rushing to open up their APIs.

Some examples:

  • photo sharing works better on Facebook because you can tag your friends directly in the pics and Facebook lets them know
  • music promotion works on Myspace because the friend system allows people to buddy up with bands to communication their affiliation publicly, in front of their friends
  • knowing who your friends are allows for entirely new types of games design – see this post
  • apps that monitor media consumption like Visual Bookshelf or LastFM are more powerful when they also know what your friends are reading or listening to

Admittedly it is early days for social network applications and as has been widely discussed most of the early apps were short on long term interest, so I could be wrong here. But if I’m not (and I don’t think I am 🙂 ) then the analogy between social networks and webmail or IM is misleading. Instead it would be better to think of them as like shopping malls or even in some ways like operating systems – as environments where people can do lots of interesting things. The only way I can see people not finding a way to make money out of the power of these frameworks is if the winners come from the open source community.

None of this of course means that the current crop of social networks will still be on top when the fat lady sings. By my argument social graph data is the secret sauce here and as the Economist points out that data resides may be better found elsewhere:

On Facebook, a social graph notoriously deteriorates after the initial thrill of finding old friends from school wears off. By contrast, an e-mail account has access to the entire address book and can infer information from the frequency and intensity of contact as it occurs.  Joe gets e-mails from Jack and Jane, but opens only Jane’s; Joe has Jane in his calendar tomorrow, and is instant-messaging with her right now; Joe tagged Jack “work only” in his address book. Perhaps Joe’s party photos should be visible to Jane, but not Jack.

To complicate matters further, we have multiple social networks in different areas of our lives and most of us like to keep them mostly independent from one another. This has been widely discussed for professional and personal networks but also applies to our interest areas – which is why I’m a believer in the power of niche socnets.

For these reasons I believe there is value in socnets.

  • Nic
    I think you have a valid point here. When I read the Economist article I was also thinking hard about what they hadn’t quite got right.

    Your views on niche socnets is interesting – I’m pursuing a slightly different vision that possibly has the same outcome as a niche, VRM.

    Within a VRM “Mine!” [the place where my data and resources reside] I can determine who or what programme is allowed in and which parts they can access and so it will enable the niche grouping to co-exist with a wider group with each accessing only the material pertinent to their raison d’etre.

    Rebecca Caroe

  • Nic
    I think you have a valid point here. When I read the Economist article I was also thinking hard about what they hadn’t quite got right.

    Your views on niche socnets is interesting – I’m pursuing a slightly different vision that possibly has the same outcome as a niche, VRM.

    Within a VRM “Mine!” [the place where my data and resources reside] I can determine who or what programme is allowed in and which parts they can access and so it will enable the niche grouping to co-exist with a wider group with each accessing only the material pertinent to their raison d’etre.

    Rebecca Caroe

  • I agree Nick, and I think its going to be very interesting when the data portability aspects come to play. What happens when the friction is removed from the social graph and it becomes easy to migrate it to wherever you want to socially interact.

    As you point out, the differentiation is building core interest applications (niche) on top of the platform, which in turn allows you to get the community engaged with real value added functions.

  • I agree Nick, and I think its going to be very interesting when the data portability aspects come to play. What happens when the friction is removed from the social graph and it becomes easy to migrate it to wherever you want to socially interact.

    As you point out, the differentiation is building core interest applications (niche) on top of the platform, which in turn allows you to get the community engaged with real value added functions.

  • Gee, I was hoping to get to leave your site today, but just had to comment. I agree with everything you’ve said here. Here is one more example that hit me this morning: on twitter, people are saying things like “sitting down at Cafe Crust to have delicious Free Trade Coffee”. Its like a “personal beacon”. The concept behind beacon was fine (IMHO), it was the implementation that screwed the pooch. Commenting and recommendations are incredibly powerful, but so are commentaries about actual consumption.

  • Gee, I was hoping to get to leave your site today, but just had to comment. I agree with everything you’ve said here. Here is one more example that hit me this morning: on twitter, people are saying things like “sitting down at Cafe Crust to have delicious Free Trade Coffee”. Its like a “personal beacon”. The concept behind beacon was fine (IMHO), it was the implementation that screwed the pooch. Commenting and recommendations are incredibly powerful, but so are commentaries about actual consumption.

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  • Nic, I thought the Economist piece was pretty much right, but longer term – in the interim I think there will be a number of twists and turns, and a “Mall” phase may well be one of them.

    Big Picture analogy to me though is that Facebook et al = AOL, CompServe etc – closed worlds. The Open “Social Internet” is not quite all there yet, but you can see the components slipping into place – Open ID, Data Portability, Blogs, UM, maybe VRM etc etc. I’m still waiting for Marc Andreessen II to build the Social Mosaic and Sir Tim II to institute the GGG.

  • Nic, I thought the Economist piece was pretty much right, but longer term – in the interim I think there will be a number of twists and turns, and a “Mall” phase may well be one of them.

    Big Picture analogy to me though is that Facebook et al = AOL, CompServe etc – closed worlds. The Open “Social Internet” is not quite all there yet, but you can see the components slipping into place – Open ID, Data Portability, Blogs, UM, maybe VRM etc etc. I’m still waiting for Marc Andreessen II to build the Social Mosaic and Sir Tim II to institute the GGG.

  • Sorry Nick, I think that the phase of walled-garden social nets is all about communication and that monetization will suffer. There are certainly exceptions like WAYN, but that’s communications about a valuable, transaction-heavy topic, rather than non-communications centric. By the time social apps are heavily into valuable areas, the walled gardens will have fallen, and we’ll be back in a distributed world.

  • Sorry Nick, I think that the phase of walled-garden social nets is all about communication and that monetization will suffer. There are certainly exceptions like WAYN, but that’s communications about a valuable, transaction-heavy topic, rather than non-communications centric. By the time social apps are heavily into valuable areas, the walled gardens will have fallen, and we’ll be back in a distributed world.

  • nic

    Thanks for the comment Scott. I agree that we are heading back into a distributed world, but I would think that if Facebook and Myspace play their cards right they could maintain their leadership positions. In this view of the world they are portals for social apps, some of which they will probably own and operate themselves, but most of which will be from third parties.

  • nic

    Thanks for the comment Scott. I agree that we are heading back into a distributed world, but I would think that if Facebook and Myspace play their cards right they could maintain their leadership positions. In this view of the world they are portals for social apps, some of which they will probably own and operate themselves, but most of which will be from third parties.

  • I can’t imagine it happening that way. Too bad — it would make Lookery’s life much easier. they will maintain their leadership as yahoo and AOL did. billions of dollars in profits will fall out of those engines, but the core functionality won’t radically expand from the features that got them to the first 100M uniques.

  • I can’t imagine it happening that way. Too bad — it would make Lookery’s life much easier. they will maintain their leadership as yahoo and AOL did. billions of dollars in profits will fall out of those engines, but the core functionality won’t radically expand from the features that got them to the first 100M uniques.

  • I would like to get some specific feedback on our approach in tackling this issue, as we are about to launch our social media tools within CelleCast. For us, our socnet is our media consumption. We can be considered a Talk radio version of LastFM, but we enable consumption of talk programming for mobile first.

    To put it another way, we combine community with consumption, whereas most of the emerging (and now struggling) social network sites around today are basically an end unto themselves.

    So I basically agree that niche socnets (like ours) are the viable trend because users have other useful reasons for being there besides networking alone.

  • I would like to get some specific feedback on our approach in tackling this issue, as we are about to launch our social media tools within CelleCast. For us, our socnet is our media consumption. We can be considered a Talk radio version of LastFM, but we enable consumption of talk programming for mobile first.

    To put it another way, we combine community with consumption, whereas most of the emerging (and now struggling) social network sites around today are basically an end unto themselves.

    So I basically agree that niche socnets (like ours) are the viable trend because users have other useful reasons for being there besides networking alone.