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Leading social networks have lost their sense of connection

Platform: Internet | Author: David Marrinan-Hayes, Digital development manager, The Hospital Club | Source: NMA magazine | Published: 19.06.08

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The last time you were introduced to a truly useful contact, a life-changing, career-enhancing, ambition-fulfilling contact, was it facilitated by a trusted friend, work colleague, strategically placed family member or a Unix server?

The question may sound facile but it goes to the heart of a rude awakening for those who think that they have a lock on online social networking. Community sites and social networks are two very different business and value propositions. In forgetting this, companies...

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... are negating their ability to generate revenue from their operations.

The market leaders in the social network space, Facebook, MySpace and Bebo, are distorting the understanding of what social networking is. It's about lowering the barriers between people to allow new relationships to be formed.

With these sites' rapid growth, the opposite is proving true. With every new member added, the walls around pre-existing groups of friends grow ever higher to the point where unsolicited contacts from those outside the walled garden are viewed with suspicion.

These sites are not social networks but souped-up telephone directories. People aren't willing to put a price on being able to aggregate those they already know online, no matter what the added technology benefits. That's why Facebook et al have to expand their business model. If your users won't pay to be connected, you have to make your cash some other way.

In January 2008, Mark Zuckerberg estimated Facebook would reap $300-350m in revenue for this fiscal year. Based on the current 70m active uses, that works out at roughly $5 per user per year. That figure looks even worse when you realise the average Facebook user spends close to 3,000 minutes on the site a year. ARPU like that in any other business would be considered weak performance.

Contrast this with Mediabistro.com. You may not have heard of Laurel Toubey but in her own way she's been developing the perfect blueprint for commercially viable, socially useful networks. And the bad news for the tech firms is that it has got nothing to do with the size of your server.

In this scenario, social networking stays closer to its traditional roots: target a social or professional niche, provide them with the appropriate tools to showcase themselves and actively encourage them to interact with one another for their mutual benefit.

Trade associations, industry bodies, guilds and private members' clubs have built up this business model over centuries, a model in which members are more than willing to part with annual dues in return for networking opportunities.

Mediabistro was recently purchased for $23m (£11.7m) and Soho House was recently acquired in a £100m+ deal. There's serious money to be made in the business of bringing people together.

As the social networking technology becomes a commodity, more and more businesses will simply offer online networking as a core part of their service, which will take away any USP online-only startups may have.

The bad news for the industry is it's a lot harder to organise a party everyone wants to pay to attend than it is develop the online system that allows them to RSVP.

David Marrinan-Hayes, Digital development manager, The Hospital Club, Publisher of thehospitalclub.com