The cost of community
Facebook, MySpace, and Friends Reunited have all been held up as models of community-based websites, but in the tough economic times of 2009, the cost of social networking can expect to come under scrutiny.
Research by Deloitte has shown that revenue from social networking sites is declining, whilst the cost of online storage is escalating as users try to upload more and more photographs and especially videos. Some of the larger sites are spending in excess of $100 million per year in storage costs.
Analysts have found that there are now more than a thousand social networking sites on the Internet, and around 22% of the UK population has some sort of profile on one or more of the top 100 sites. Despite that, revenue expectations are low. Deloitte found that the revenue per user per month is often measured in pennies on a social networking site, rather than the pounds that you could expect per subscriber from a newspaper, phone or cable TV business, and many of the network users generate no revenue at all.
In view of that, some of these sites may seem to be rather over-valued in the current economic climate. When Microsoft paid $240 million for a tiny 1.6% share of Facebook in October 2007, it was estimating that each subscriber was worth $300. CBS paid $280 million to acquire music website Last FM, and AOL paid a staggering $850 million when it bought Bebo. On our own shores, ITV acquired Friends Reunited in the boom years of 2005 for £120 million, and said it would invest a further £55 million if the operation met targets by 2009.
When the world wide web first came into the conciousness, some 15 years ago, we saw the famous "dot com" bubble where domain names changed hands for silly money and everyone with a half baked idea for a website thought they could become the next dot com millionaire. The bubble burst and a lot of venture capitalists were left out of pocket. Now we seem to have a repeat of that, only this time around the scramble has been to create social networking websites with "web 2.0" features and equally unrealistic business plans, and again we have seen these ethereal properties changing hands for astronomical sums which, in most cases, look set to massively under-perform.
Wikipedia has survived using a different model. It is free of charge and free of advertising, light on graphics, and relies on voluntary contributions. Following a recent fund raising drive it has succeeded in raising the $6 million it needed to offset its 2008 expenses. By comparison with other less successful community-driven sites, $6 million per year is quite modest.
19th January 2009
This article comes from the SKILLZONE email newsletter, published monthly since January 2008, and covering topics related to technology and the internet. All articles and artwork in the SKILLZONE newsletter are orignal content.