I talking about social networks and online environments with a colleague this week, the 400-pound gorilla of the web 2.0 world came up: nobody is making any real money yet. “What people don’t realize,” he said, “is that YouTube has a lot of views, but has been losing its shirt. Facebook doesn’t make money. Twitter doesn’t make money.”
It’s a good point. Just as the “dot-com” craze launched a bubble and an eventual bust in the late 1990s and early 2000s, the Web 2.0 industry has a bubble of its own. Outside of Google – who has made tons of money, but is seeing their business model coming under attack from privacy groups – most companies have been supported by venture capital.
For all their popularity, Facebook and Twitter will have to figure out some way to make money off the masses who use them or they could find themselves endangered. And while some recent innovations (like Facebook opening up it’s back-end programming) make these sites more useful to more people paradoxically make it harder to make money.
For the past year and a half especially, people have tracked and managed Twitter accounts via third-party programs either on their laptop or mobile phone – people rarely go to Twitter.com. With Facebook opening up their programming, it invites the same pattern of usage. In other words, both these sites promise to offer infrastructure for people to use for sharing content – but without having eyeballs on their actual sites, they can’t rely on the advertising revenue stream that so many other online companies have used as their bread and butter. That’s why there’s some speculation that browser companies might take over social networking as an attractive add-on to Firefox, Chrome, or Internet Explorer.
At the same time, outside groups have an interest in keeping these services afloat. Politicians and advocacy campaigns come to mind immediately as entities who have benefited from online networks. But wherever monetization ultimately comes from, at some point the monied interests who have supported the web 2.0 bubble will look for a return on their investment. If that return isn’t there, this bubble may burst, too.
Jim Eltringham 