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May 25, 2005

Social Networking for a Reason (and Revenue)

With yesterday’s news that Friendster is laying off people and that the company’s CEO will be leaving in a few weeks, it’s apparent that some of the first generation social networking sites are hitting a few bumps in the road. Bill Burnham wrote about this problem in a great post a few weeks ago,

"You see, despite all the hype about social networking, it has now become readily apparent that social networking is not an application in and of itself, but rather a by-product of other activities."

In other words, there needs to be a reason why people are getting connected. Jeff Clavier continues along that mode of thinking,

"The first generation of social networking sites (Friendster, Tribe, ZeroDegrees, Orkut, ...) have all gone through ups and downs (more downs) as they were pioneering in this new space - and not really figuring out a business model for themselves, besides advertising. Social networking is now an integral part of the fabric of Internet applications, but offers limited value in its own right - with a very quick decay of one's interest."

I would argue that in addition to possessing a reason d’etre, successful social networking companies will more closely integrate the revenue model into the functionality of the service. It’s not just about throwing up some advertising. Take, for example, H3, which embeds the purpose of the network (locating job candidates) directly into the revenue stream (a bounty for a located candidate). I think that we’ll continue to see closer alignment of the connections’ goals with the revenue derived from them.

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