Social Media Sites Making Money? Are You Kidding?

The Facebook saga is both fascinating and paradoxical. Facebook has drawn millions of users to its site and has become a pop culture icon. The giant asterisk to this success is they have yet to figure out how to monetize it (in other words, how do you get paid – how do you make money?).

The CEO of Facebook (pictured below) says it will take 5 to 15 years to figure out how to monetize social networking applications. He says his focus is on growth, not revenue. (See also this report suggesting Facebook has a growing cash problem, despite getting hundreds of millions of dollars in investments.)

In the meantime, Facebook and its poorly- or non-monetized brethren (YouTube, Twitter, et al) continue to break new ground by influencing how people behave and spend their time. In fact, our own consultants and venture capitalists urged us to utilize social networking when we rolled out our SaaS application last year.

So, I opened a Facebook account and we produced a few cute YouTube videos. Voila! We generated over 10,000 eXpresso users over the past year. With each paying $79, that would be a very nice return! Trouble is, these users weren’t used to paying anything for Web applications and most opted for our “free” version.

What has to be frustrating for the social networking companies is that their users don’t believe they should pay for their services.

Fortunately for us, there is a marked distinction between social networking sites and SaaS (software-as-a-service) business applications. I think a lot of industry pundits and investors are beginning to understand that although social and business applications both play in the “Cloud”, their respective users play – and pay — differently.

But there’s a silver lining. Any complaint about social applications “training” millions of users that their online experience must be “free” is offset by having a generation of people now comfortable with, and trusting of, online applications. That, combined with the legitimization of the SaaS business space by pioneers like Salesforce.com, sets the stage for a computing sea change that will dwarf the social networking phenomenon.

The next generation of business applications will be based – and used – in the Cloud. They won’t be free, but they’ll be cheaper, quicker, and more functional than what anyone could have imagined just a few years ago. We’re going to be real-time witnesses to history. The speed of adoption will be faster than any other business landscape change we’ve seen since the introduction of the abacus.

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George Langan, CEO of eXpresso CorpAbout the Author: George Langan is the CEO of eXpresso Corporation, a collaborative software service. George brings to the table extensive experience running software businesses. His blog can be found at: http://blog.expressocorp.com.

10 Comments ▼

George Langan




10 Reactions

  1. The psychology of ‘giving it (social media) away for free’ and THEN trying to monetize is a significant challenge for any business. The offer will have to change or improve. However sites like Facebook and Twitter have certainly solved the problem of getting traffic by engaging its audience.

  2. That is a down side of social sites. People expect to not have to pay to communicate with others online. I think it would be really difficult to get people to pay to use the service when they can use another one free. I know that I myself would not pay to use social media sites not matter what the extras may be.

  3. It is a conundrum of sorts, isn’t it? However, I do think that somewhere, someone along the way will figure this out. It’s the natural cycle of things . . . to constantly evolve and grow. As these sites and this technology does so, you will see changes in the future – no doubt.

    The Facebook backstory is an interesting one, too. Never ceases to amaze me what all these young minds are capable of these days. Brings to mind the youngster behind the Napster phenomena as well . . . amazing and quite inspirational.

  4. Anita Campbell

    Hi George, I think you’re right that people have been somewhat spoiled with free applications. Sometimes expectations are that everything in the world will be free — and that’s just not the case.

    For instance, even Google, the mother of all free services, is now charging businesses for its Premier Google Apps, at $50 per user per year. http://www.google.com/apps/intl/en/business/details.html

    And with the tightening economy I think we will see a lot of the free social media sites either have to find a revenue model other than advertising — fast — or they will go away.

    However, I do have to push back on the value of social media for businesses. :)

    The Web is becoming a social place, and social media amplifies your other marketing, including search marketing. So instead of asking whether it is specifically bringing you paying customers, you might ask if it is helping you with brand recognition, expanding your search reach, spurring word of mouth marketing, and other valuable activities.

    Anyway, thought-provoking article. I enjoyed it.

    Anita

  5. Jim Kukral

    You can use social media for ROI, if you know how. There’s not many case studies out there right now about exactly how to do it, but they are coming.

    It’s like blogs 5 years ago. Nobody said you should or could use them to “make money” or “market”. Same thing here with social media.

  6. Martin Lindeskog

    I haven’t logged into my Facebook account for a long time now. It is time to start using it again… ;)

  7. “Trouble is, these users weren’t used to paying anything for Web applications and most opted for our “free” version.”

    - Oops, I should say…

  8. The issue here is that the business model for social networking is based on the free cost of getting a customer – which is not true. File space still costs money even if it is only a few pence.
    What you are seeing here is the political and economic ideas of socialism being transfered to the internet business model. Eventually, just like in the real world, people will realise that it just doesn’t work – never mind how much they would like it to work.

    The most sensible way of monitizing social media is through subscription. However, more importatly, notice that economies of scale also have their limitations. It is sometimes more profitable to be smaller.

    If you want an idea of what will happen to Facebook within the next few years – look up ICQ!

  9. “Trouble is, these users weren’t used to paying anything for Web applications and most opted for our “free” version.”

    - It is really a trouble since there are a lot of social media applications people can join too for instance — for FREE.

  10. I think it will take a while and the uses of social media will evolve, but eventually I do expect to see them play a central role in business. When that happens, the ones that have the greatest market share will have a leg up on everyone else.

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