Can social networks sustain themselves financially?

Social networks such as Orkut, Facebook and MySpace are proliferating among consumers, especially the youth. However, for the millions of members these networks claim to attract, do they have a business plan? In other works, do social networks make sense in terms of raking in money or at least sustaining themselves? We spoke to a few industry professionals about their thoughts on the subject, and how they think social networks can evolve a successful model to continue their dream run.

Mahesh Murthy
Founder and CEO, Pinstorm

Online marketing is moving from a brand awareness and impression-based CPM regime to one where the client demands advertising performance - through a click or sales itself. While search engines and other contextual advertising offer options such as cost per click, social networks hardly do because users of such sites are not on an information-gathering mission (like they are at search or contextual sites). They tend to ignore advertising. Even when it comes to display advertising, ad sizes and units on these sites lag behind that of conventional digital media. There are other ways to use social networks to promote advertisers. A prominent way is to run a mini network for the client but only the more technology savvy clients are exploiting this method.

Navin Mittal
Business Head, Fropper.com

Social networking is not a fad because more than 10 million people use social networks to communicate, collaborate and build communities. When Rupert Murdoch’s NewsCorp bought MySpace for a whopping $580 million, there was a lot of talk about the social networking business being overvalued. But it has been a great investment for Murdoch’s company. It is too early to comment on the business aspect of the social networking phenomenon in India. Most of these sites are grappling to come up with a foolproof business model that addresses the needs of a distinct community and makes profits at the same time. As of now, subscription fees and advertising form key components of the revenue generation for social networks, while some like Fropper.com use a hybrid of both. Innovations in revenue streams will happen simultaneously. But it is too early to put forth the question of sustainability.

Hari Shankar
Business Director, Starcom IP (India)

Currently, other than banner ads, paid-for access to some applications and services, the revenue models of social networking sites are hazy. A few revenue models I can think of are high-value subscription model (such as Reunion.com in the US) or bringing paid-for services based on the most popular applications (the largest photo sharing application on the web is Facebook in the US). Evolving ad management systems that can deliver relevant targeting capability based on content affinity and behaviour can enable revenue extraction to a high level. An example is Twitter where targeted ad delivery can be evolved based on parsing the 'tweets' of users, singling out keywords, themes and delivering relevant messages as sponsored content.

Mrutyunjay Mishra
Director, JuxtConsult

Social networking is an interesting market. Just five years ago, LinkedIn had just 50,000 users and received $4.7 million in first round funding. Now, its user base is supposedly more than 20 million active users worldwide, and it claims that 1.3 million new members join per month. Moreover, it charges advertisers $75 per thousand impressions. I also read recently that an investment bank is helping LinkedIn to raise a venture that would value the company at $1 billion. Facebook, which has raised $493 million, is projecting $350 million in revenues this year. Financial sustainability in the social networking front today means nothing beyond spending venture capital and bringing in "sustainable revenue possibilities" from the "core propositions for the actual customers" and "bigger revenue possibilities from advertisers".I am yet to see an indigenous idea that makes sense. I am not sure if Indian ones can hang on till they make decent money.