On October 16, 2008, Twitter’s CEO and co-founder Jack Dorsey stepped down, leaving co-founder Evan Williams in charge. Despite official hints otherwise, the changing of the guard seems inextricably linked to Twitter’s continued lack of a monetization model. Twitter backer Spark Capital says revenue models will not be unveiled until next year, a surprisingly long time considering the current economy.
Twitter’s financial issues cause us to focus on the question – can social networking be profitably monetized or is it one gigantic bubble of investment hype? I am not speaking of the value of the actual networking properties from a users’ perspective, but of the simple fact that the companies involved need to generate profits to stay afloat. They currently try to generate profit using CPM advertising, which many believe is an inefficient ad medium for social networking sites. Unfortunately, the formula for financial viability has yet to be discovered.
Seth Goldstein, CEO of SocialMedia, calls social advertising a paradox offering an “unlimited inventory of impressions that users have come to ignore, but very limited inventory of commercial experiences that users are opting to engage with.” So where does the Holy Grail of financial viability lie for social networking properties? Two avenues seem promising
Influence Rank: Google has filed a patent for a process to track influence rank within social networks that could place Google as the leader of social monetization. The process will track “not just how many friends you have on Facebook but how many friends your friends have. Well-connected chums make you particularly influential. The tracking system also would follow how frequently people post things on each other’s sites. It could even rate how successful somebody is in getting friends to read a news story or watch a video clip.” (Source: BusinessWeek, 9/25/08)
This style of behavioral algorithm makes sense considering the overall success of Google’s similar PageRank algorithm. When or if “Influence Rank” goes live, the advertising world will be lining up for the opportunity to laser-target influential social users.
Mobile Phone Apps: Mobile social applications are going to prosper financially thanks to the incredible success of the iPhone and similar expectations for the upcoming G1 phone. The reason is relatively simple – computer users have come to expect NOT TO PAY for social applications, but they do expect TO PAY for useful mobile applications.
Tapulous is a company that may win the social monetization game through creating interconnected mobile applications for the iPhone (and other phones). Builder of the popular iPhone game Tap Tap Revenge, they also created Twinkle, which acts like and interfaces with Twitter but also allows sending images and sharing location information.
The company is planning some bold moves for mobile, including photo sharing, contact sharing, and a restaurant review application for instant culinary reviews. In all cases, Tapulous programs will be cleverly meshed to allow users of one program to become aware of other users and programs in the network. How will Tapulous monetize this system? A premium version of Tap Tap Revenge with the potential for users to buy popular music tracks in the game is planned, and Twinkle will soon incorporate advertising.
Could the leadership change at Twitter be just a “shuffling of deck chairs on the Titanic” (as characterized by Chris Snyder of Wired) or will Twitter and its social brethren find a monetization strategy before too long? After all, Google similarly launched its service without a sound strategy for profit-making. While we wait, the dust storm around the question of social media monetization grows as investors demand results in these uncertain financial times.