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BREAKING NEWS & VIEWS
Social Media: Tough Climb to Profitability In the last 27 months, social media M&A has totaled $25.5 billion across 902 transactions, according to Fine’s report. The largest share, $800 million, comes from gaming-related companies. Banner ads and various attempts to leverage the social graph that users create in these communities largely have failed. Many investors and content providers are looking to the virtual goods model to provide revenue. Communities like the virtual doll site Stardoll and social network hi5 charge users to upgrade their personal “avatar” figure or profile or to play games in-world with others. A popular mobile social gaming hub, Cellufun, asks users to buy “Fun Coins” they can exchange for buying game items that advance them more quickly in a contest or offer a game-play advantage. According to Neil Edwards, CEO, Cellufun, helping users enhance their social networking experience with virtual goods is a more reliable and natural way to monetize community energy than throwing banners on pages. “There is a ton of transaction revenue,” he says. His mobile site boasts 5 million members and should reach 1 billion page views a month by the end of the year as partnerships with carriers like Verizon funnel traffic to the site. But one of the intrinsic problems with social networks, both on mobile and the Web, is that they generate massive amounts of ad inventory that naturally depresses CPMs. Virtual goods markets help social networks sell to users directly tools for deepening an experience they already enjoy. “We see it dwarfing the advertising revenue stream over time,” says Edwards. “We think our model will be 30% advertising and 70% transactions.” Or not, says Fine in her report. The virtual goods model is hot right now, but it is rife with a sense of novelty that may not be proven out for users over time. The more general social networks like Facebook, MySpace, hi5 and bebo will struggle to profitability, and Fine argues that not all of them are likely to survive. Subscription fees are more likely to work with more targeted networks like LinkedIn. If you have breaking news to share please contact Steve Smith at ssmith@accessintel.com COMMENTS
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