What’s on the MobCon Radar for the Social Networks?
We have used the MobCon Radar to compare the Mobile Content convergence strategies of the MobCon market leaders (e.g Microsoft, AOL, Yahoo and IAC, New York Times, News Corp, Google and Nokia and Apple).
Now let’s take a look at the social networks. We’ll limit our study to the top 3 brand names in social networking in the USA today. Facebook, MySpace and LinkedIn.
We’ll begin by stating the obvious. The social networks are in the business of acquiring market share and by market share I mean the largest possible number of eye-balls.
As Om Malik points out in his coverage of the economics of the social networking business model (See MySpace’s Revenue Problems & The Bell Now Tolls for Social Networks) . The goal of Facebook CEO Mark Zuckerberg is traffic…
[Facebook] won’t have a business model for three years. “Growth is primary, revenue is secondary,”
Essentially they have the same business model as the Web’s Wal-Marts. The only difference is social networks specialise in DIY media and entertainment. They are not weighed down with the costs of developing content. Their audience simply enjoys creating content for themselves and sharing it with their peers.
As I pointed out in Today’s media? It’s all about Find Me, Find You and Let’s Exchange they have been very successful in applying this strategy. Australians now spend 6 hours a month on Facebook compared to 1.2 hours on the News Corp web sites. This means Facebook is 4 times more stickier than news.
Plus it has taken only 2 years for Facebook’s audience grew from nowhere to be 40% larger than News Corp’s.
You can see this extraordinary growth here on the interactive history of the Australian Internet since 2001. Australia isn’t unique. You’ll find similar patterns here on The Facebook Death Star moves across the universe slide show prepared by TechCrunch’s Erick Schonfeld. [Updated 22 Dec 2009] See also TechCrunch’s World Map Of Social Networks Shows Rise Of Facebook.
So they have the audience and they are very sticky compared to other online media but can they make it pay?
Social Networks are of course Freemium business models.
As Peter Froberg has pointed out to us before: The term “freemium” is made up of the words free and premium. It describes a business model where you give away a core product for free, then generate revenue from selling premium products to a small part of the free users.
The problem for the social networks is they have yet to work out what that premium product is. In the meantime they have simply resorted to putting Ads on the menu.
There are no shortage of Freemium sceptics. Some of the most informed are The New Yorker’s Malcolm Gladwell (See Priced to Sell: Is free the future?), Mark Cuban (See when you live by your free service, you die by your free service) and Zdnet’s Phil Wainewright (See Free is not a business model).
So are the Freemium sceptics right? Are the social networks economically unviable? How do they compare to other business models on the web?
Let’s find out by taking a look at their current revenues models.
We’ll begin with Facebook.
Silicon Alley Insider provided some insight into the economics of Facebook with their post from earlier this year: Everything You Wanted To Know About Facebook’s Revenue But Didn’t Know Who To Ask
… estimate the company’s expected 2009 revenue this way:
- $125 million from brand ads
- $150 million from Facebook’s ad deal with Microsoft
- $75 million from virtual goods
- $200 million from self-service ads.
Total: $550 Million.
As Fred Wilson points out in Freemium and Freeconomics
That’s a revenue per monthly active user of $0.25. Low for sure, but enough to operate at breakeven.
This figure makes interesting reading along side the estimated $200 Mil. in revenues that social games developer Zynga makes from their audience of 125 Mil. players. (See Even the games developers are discovering that online… Analog Dollars equals Digital Pennies). These figures suggest that the games developer achieves roughly half the ARPU of the platform provider.
Now let’s take a look at MySpace.
BusinessInsider provided an even better piece earlier this year on MySpace’s revenues for the period 2006-2008. (See MySpace Ad Revenues Closing In On AOL’s). In this article they compare MySpace with the 3 top web portals MSN, AOL and Yahoo!. These figures show MySpace’s 2008 revenues at $820 Mil. which is about half those of MSN. MySpace also had the highest page view figures, double that of MSN and AOL.
MySpace has an audience estimated at 125 Mil. Which again makes an interesting comparison to Zynga’s estimated audience of 125 Mil. players.
Mid-year estimates put MySpace’s revenues down by 15% for 2009. However these 2008 figures would put MySpace’s ARPU at just of double those of Facebook at about $6.50.
In the Mobile Web arena MySpace delivers about $5 in APRU per year to the telco. MySpace would receive 60% of that subscription fee. Interestingly this figure is more than double the APRU generated by Mobile Advertising.
Finally we’ll take a look at LinkedIn’s revenue model.
The New York Times publish this piece last year on LinkedIn At Social Site, Only the Businesslike Need Apply. In the article they suggest…
LinkedIn will get only a quarter of its projected $100 million in revenue this year from ads. Other moneymakers include premium subscriptions, which let users directly contact any user on the site instead of requiring an introduction from another member… A third source of revenue is recruitment tools that companies can use to find people who may not even be actively looking for new jobs.
Om Malik wrote an interesting piece in the middle of last rear entitled Is LinkedIn Worth $1 Billion?. In it he explores the market valuations of Facebook, LinkedIn and XING. Om reported at that time that XING had revenues of around $11.6 million at the end of first quarter 2008; about 70 cents per month per subscriber. These figures put XING’s ARPU at the Same level as MySpace. While LinkedIn’s ARPU was about $3.48.
So this gives us some kind of feeling for the range of ARPU currently being generated by the top social network sites. It is somewhere between $3 to $9 per year.
These figures compare favourably to both the business of blogging where we discovered the ARPU across the top 7 tech blogs was just $1.55 and of course the New York Times Online who in 2007 generated an ARPU of online $3.80. The big advantage of course is they don’t have the ongoing costs of developing the content to attract the audience. The audience keeps themselves occupied.
So the challenge facing the social networks is no different to any other media outlet struggling to make it work on-line. They face the challenge of converting Digital Pennies into Analog Dollars.
Over the next week we’ll try and explore some of the MobCon options that may allow them to do that.
Other posts in this series on the monetization of Social Networks
- FaceBank, MyBank and BankedIn
- AdBook, AdSpace and AdLinked
- FaceGames, MyGames and GamesIn
- FaceCover, myProtection and LinkedIndemnity
- Facefone, myPhone and LinkedTel
- FaceCenter, myBrand and the LinkedInLounge
