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

By April 4, 2008 17 Comments

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.