Social Network Ad Spending Keeps Rising

AUGUST 13, 2007

Debra Aho Williamson, Senior Analyst

Last week, News Corp. announced that Fox Interactive Media turned its first annual profit on revenue of $550 million. With an estimated 80% of FIM revenue coming from MySpace, that translates to about $440 million in MySpace revenue for the fiscal year, which ended June 30. Almost all of that comes from advertising.

To those who had their doubts about MySpace, News Corp. CEO Rupert Murdoch had this to say during the earnings call: "It wasn't so long ago — 24 months — when many said we were embarking on a fool's errand. In the 12 months prior to our acquiring MySpace, the site generated $23 million in revenue. Today, on the back of its durability and success, we are forecasting that MySpace alone will generate in excess of $800 million in revenue in fiscal '08."

eMarketer has projected that MySpace would generate $525 million in US ad revenue in calendar 2007 and $820 million in 2008. Both of those figures will likely rise when we issue our next social network ad spending forecast later this year.

Three factors will drive increased revenue for MySpace in the near term. It has begun beta-testing a new targeted advertising tool that will significantly increase CPMs. Parent Fox Interactive Media's deal with Google to supply search technology is providing increased revenue. Lastly, MySpace's international business has ramped up significantly.

At Facebook, which lately has stolen a lot of MySpace's thunder, revenue may also surpass our projection of $125 million in 2007. It now has 31 million active users, up from 8.9 million in September 2006, and generates 40 billion page views a month.

Clearly, its deal with Microsoft to sell banner advertising (reportedly contributing $200 million to Facebook's coffers through 2008) is a big revenue driver. (A flap last week over some banner ads appearing on the Facebook page of a British extreme-right-wing group will likely blow over.)

So, all is rosy in social networking, right? Well, not exactly. With banner ads and search deals plowing in a good chunk of revenue for these sites, what happens to the original promise of social network marketing: delivering a message to one person and having that person spread the message to his or her network? That part is still a work in progress.

Marketers are still grappling with how to measure the effectiveness of forming groups; as one commenter recently wrote on the Valleywag blog, "is simply joining a group really driving sales, profits, and metrics that actually matter?"

eMarketer projects that marketers will spend $900 million advertising on social networks in the US this year.

That figure will likely increase, at least in the near term, but if advertisers simply go for the low-hanging fruit of banners and search instead of reaching for the exponential effect of pass-along, much of the promise — and potential — of social networking will be lost.

Learn how social networkers are becoming brand advocates. Please read the eMarketer Social Network Marketing: Where to Next? report.

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July/August 2008
Social Networking Is Not a Business*
Web 2.0--the dream of the user-built, user-centered, user-run Internet--has delivered on just about every promise except profit. Will its most prominent example, social networking, ever make any money?
By Bryant Urstadt

*But It Might Be Soon.

KickApps is an 80-person social-networking startup with its head office in a loftlike space just off Fifth Avenue in New York. In less than two years it has created the underlying structure for more than 20,000 social-networking sites--"mini-Facebooks" with an aggregate of 300 million page views per month. You've probably never heard of it.

KickApps gets a fraction of the press coverage of a giant like Facebook, but its growth has been sufficiently impressive that venture firms like Spark Capital and Prism VentureWorks have backed it with $18 million in startup financing, hoping for the payoff of a monster IPO. Its software allows companies to quickly roll out social networks with many of the features of Facebook or MySpace. Its clients--which include local radio stations and newspapers, national networks like NPR and ABC, and brands like AutoByTel, Harley-Davidson, and Kraft--want to offer fans a place to gather and share their love of a team, a product, or anything else.

KickApps' CEO is Alex Blum, formerly of JumpTV, an online television service specializing in sports. "We have 35 programmers working in this office," says Blum, leading a reporter through a sea of desks and flat-screen monitors, "and we only have two marketing people. We don't really have to sell our product."

Like most of the social-networking sites enjoying huge growth, KickApps is giving its product away, expecting that the communities built around it will generate ad revenues. It's a model that stirs memories of the first Internet bubble: build the user base and hope the money comes--from an IPO, a buyout, or ads. At this point, KickApps does not reveal revenue figures, or even what kind of a cut it is taking from the ads. That, too, brings back memories: staying mum about revenue was always a sign that there wasn't much to talk about.

Many Users, Few Dollars
Social networking is the fastest-growing activity on Web 2.0--the shorthand term for the new user-centered Internet, where everyone publicly modifies everyone else's work, whether it's an encyclopedia entry or a photo album. The growth of social networking is astonishing, and it has spread to sites of all sizes, which are increasingly intertwined as platforms open (see "Who Owns Your Friends?"). Even small players are soaring.

Ning, for example, is similar to KickApps but caters to individuals. Founded in 2004 by Netscape's Marc Andreessen and former Goldman Sachs analyst Gina Bianchini, it has been backed with $104 million in venture capital by a variety of firms, including Legg Mason. "We've got 267,787 sites," boasted Bianchini in May. "And we're adding 1,500 to 2,000 a day." ComScore, a firm that measures Internet usage, reports that the Ning domain, on which all the sites reside, sees three million unique visitors a month.

Meanwhile, Bebo, a social-networking site more popular abroad than in the United States, sees more than 22 million visitors a month. (AOL bought it for $850 million in March.) Club Penguin, a network for kids, sees five million. LinkedIn, a ­business-­networking site, gets nearly five million unique visits.

But that's just the smaller players. Facebook, according to ComScore's latest research, saw 33.9 million unique U.S. visitors in January 2008, nearly double the number from the previous January (but down by about 2 percent from December 2007). MySpace doubled Facebook's numbers again, with nearly 72 million unique visitors in the same month.

Nevertheless, the sites seem largely incapable of generating revenues commensurate with their popularity.

Last year, Microsoft bought a 1.6 percent stake in Facebook for $240 million, giving the company a dubious valuation of $15 billion. But Facebook is likely to lose $150 million this year, according to a January conference call heard by Kara Swisher of All Things Digital, a Wall Street Journal-affiliated site devoted to "news, analysis, and opinion about the digital revolution." That's based on projected earnings--before interest, taxes, depreciation, and amortization--of $50 million and an expected $200 million in capital expenses, including new servers.

Revenues for MySpace parent Fox Interactive Media fell $100 million short of predictions this year, apparently leading to the dismissal of the chief revenue officer. And Google met with disappointment after paying $900 million in 2006 to get a piece of MySpace's traffic, buying the right to deliver ads for three years against keywords entered on the networking site. "I don't think we have the killer best way to advertise and monetize social networks yet," said Google cofounder Sergey Brin in a call with investors after Google announced its fourth-quarter 2007 results.

Ning does not release numbers about ad sales. All Bianchini will say is, "The number of networks we have is our leading indicator." If Ning's experience is anything like MySpace's and Facebook's, its leading indicator just indicates a lot of users.

Lookery, an advertising network that buys ad space on Facebook in bulk, has been reselling that space at 13 cents per thousand times an ad is served, or in ad industry jargon, at a $0.13 cost per mille (CPM). Facebook sets a minimum CPM of $0.15 for its "social ads," which allow advertisers to target ads to Facebook users and groups according to characteristics like location and age. And over the last year, MySpace has lowered its banner-ad rate from a CPM of $3.25 to one of less than $2. By way of comparison, a banner on ­Mashable, a blog covering the world of social networking, has a CPM of $7 to $33, depending on its size. Websites with clearly defined audiences of executives and technologists who purchase corporate products and services, such as, do best of all. Technology Review's site boasts a CPM of $70.

But even low rates haven't been enough to lure advertisers and media buyers to social networking. "A lot of advertisers are very hesitant to get into MySpace," says Anthony Acquisti, who oversees strategy for emerging media at OMD, an advertising agency in New York. "We've even flat-out told interested brands, 'You don't want to be there.'"

Why not? The problems with social-network advertising revolve around three main issues: attention, privacy, and content.

Attention Deficit
In the last week of April, around 400 people who spend their days trying to figure out how to make money in social networking gathered at the Skirball Cultural Center in Los Angeles. The conference went by the not very catchy name of EconSM, short for Economics of Social Media.

The point of the conference was clear enough. As Kara Swisher, one of the panel moderators, joked on her blog: "I'm in search of the elusive profit, which I don't think I'm going to find."

Almost every player in the game was represented: smaller companies that sent their CEOs, like Alex Blum; investment banks that wanted to take them public; and companies like Yahoo, AOL, and Fox Interactive Media, which were in the market for acquisitions. (Facebook sent no one.) "This is a huge conference," Blum said. "All the people we work with are here."

But they didn't seem very engaged. Audience members were jumpy, posting updates to the micro­blogging service Twitter, checking e-mail, reading blogs, dipping into the newspaper, and--occasionally--listening. Specific problems addressed in panel sessions quickly sorted themselves out into a general problem and a general response. People weren't paying attention to the ads (as, indeed, people at the conference weren't much paying attention to the panels). One panelist, Seth Goldstein, put it this way: "Right now, 'social' advertising is anything on a social-networking site that users are pretty good at ignoring."

Goldstein should know, since his company, Social Media, sells advertising linked to the applications developed for Facebook and MySpace--products like Scrabulous and Compare People, which are hugely popular among the sites' users. "The trouble," says Goldstein, "is we're putting ads up in front of users, where they can ignore them. We've got to get them between users."

Goldstein's comment had the air of a slightly worn sound bite, but it did acknowledge a problem that outside observers describe more bluntly. "It's a really bad place to advertise," Jason ­Calacanis, founder of Webblogs and, says of social-­networking sites. As he wrote in an e-mail, members of social networks "are busy in conversations and don't want marketing messages."

Compare the situation of social networks with that of Google, which manages to make money putting ads in front of users.

With about 140 million unique visitors per month, Google earned $16 billion in 2007, largely from ads that people did pay attention to. (It may bear mentioning that Facebook recently hired Sheryl Sandberg away from Google, whose phenomenally successful ad program she had led.) Google's AdWords auction sells ads on a cost-per-click basis: advertisers pay not for a thousand viewings but for each individual click on a particular keyword. Advertisers choose how much to spend over any period of time, and they can influence the placement of their ads by paying more. Bids vary according to keyword, of course, but they were averaging around 70 cents per click in the first quarter of 2008.

Advertising on Google works because visitors come to Google looking for specific information. If a user who types "scooter" in the site's search field is hoping to buy a scooter, the keyword ads that appear at the right of the search results can be more useful than the results themselves. In social networks, on the other hand, users show up to find friends; ads are, at best, irrele­vant to that goal. The click-through rates on social-­networking sites bear this out. While around 2 percent of Google users actually click on a given ad (and the number is much higher when users are conducting searches for purchasing reasons), fewer than .04 percent of Facebook users do, according to a media buyer's report obtained last year by the Silicon Valley blog Valleywag.

Users in the Crosshairs
When social-media insiders are asked how advertising could capture users' attention, they always answer, "Targeting."

Targeting is at the core of traditional advertising; apparel manufacturers advertise in Vogue, for example, to reach readers interested in fashion. In the case of social-networking sites, targeting means sifting through the data in your profile to get an idea of what you're interested in. Social networks know more about you, your preferences, and your behavior than most businesses, and profiles are generally considered, in the words of former Fox Interactive Media executive Ross Levinsohn, "digital gold." Mining that gold is the best way for a social-networking site to make money--but, given users' attitudes toward privacy, the trickiest.

Startups that help advertisers and marketers better target the users of social-networking sites are fashionable investments for venture capitalists in North America and Europe. Such startups hope to sell advertisers detailed information about individual social networkers. They include the brand-new 33Across (which we profile in our list of 10 notable startups, which begins on page 50) and the more established Finnish company Xtract, which counts Vodafone, T-Mobile, and Blyk among its customers and has begun selling its software to advertising agencies and online marketers and publishers.

For social-networking sites, targeting will necessarily entail getting "between" users, as Seth Goldstein put it. You come to a social network because you are interested in your friends; ergo, the thinking goes, in order to get your attention, advertisers need to let you know what your friends are buying or thinking about buying, or they must somehow get you to send each other ads. It's either a beautiful idea or a creepy one, depending on whether you're an ad executive or the user of a social network.

In November 2007, Facebook tried to get between its users with its Beacon program. Announcing the program in New York, Facebook founder Mark Zuckerberg declared, "The next hundred years will be different for advertising, and it starts today."

Beacon was an advertiser's dream--and, like many things that are good for advertisers, very annoying to ordinary folks. ­Working with commercial websites like Blockbuster and eBay, Beacon tracked Facebook users' purchases and displayed them to their friends.

The problem was that users were enrolled in the program automatically. If a user went to, say, the Blockbuster site and rented a movie, that information was automatically sent to everyone in her Facebook network. (That's what happened to ­Cathryn Elaine ­Harris of Dallas; she is suing Blockbuster for violating the Video Privacy Protection Act.) Online petitions and negative press ensued, and the program was clumsily scaled back. On the company blog, Zuckerberg wrote, "We've made a lot of mistakes building this feature, but we've made even more with how we've handled them. We simply did a bad job with this release, and I apologize for it."

Still, "Beacon is alive and well," says Chamath Palihapitiya, Facebook's vice president of product marketing. "What happened was unfortunate," he says. "We took a step back and tried to figure out how to improve it." Now it's an opt-in system, and users can choose what information to share--or whether to participate at all. About 30 companies are still with the service, he says.

Most of the industry members at EconSM liked Beacon, wished it had worked better, and felt it would work eventually; Goldstein called it a "sign of things to come." But maintaining the user's trust in how data is used is paramount, says Roger McNamee, a venture capitalist who made early bets on companies like Electronic Arts and Intuit. "Facebook is so much more personal than Google," says McNamee, who invested in Facebook and is a confidant of Zuckerberg. "It really matters to people how their information is used."

Not every attempt at targeting has aroused as much protest as Beacon. In 2007, MySpace launched its HyperTargeting system, which scans users' profiles for information about their interests and demographics. It sorts the profiles into 10 rough categories--such as sports and entertainment--that are subdivided into more than 1,000 narrower categories, such as baseball or a specific film. (E-mail and personal messages are currently not scanned at either Facebook or MySpace.) Says Adam Bain, president of the Fox Interactive Media Audience Network, "People are essentially hand-raising every single day on MySpace and other social-media sites. What we want to do is take that and put it into easy-to-buy segments."

Bain says MySpace did extensive research before the launch. "The users said, 'I understand I have to live with ads, and I don't mind them,'" he says. "The concept of relevance really resonated with users." The algorithm is constantly modified by a 150-person team; it is already on its 12th revision. Although the program has not yet led to riches, "it has led to an unprecedented amount of advertisers coming to MySpace," Bain says. "We're getting blue-chip brand names like Adidas, Schwab, and Electronic Arts, Frito-Lay, Kraft, General Mills, and McDonald's."

Are those advertisers as excited as Bain is? "We've bought a little bit," says Marc Ruxin, director of digital strategy and innovation at the advertising firm McCann. "It's been okay." Well, that's better than nothing. Still, it doesn't exactly settle the question of whether targeting, even if it avoids the worst of users' privacy concerns, will ever be able to punch through the attention barrier.

Bad Neighbors
Another problem that targeting may not be able to solve is the one posed by what advertisers call "content adjacency."

Unlike a newspaper or television show, social networking is a medium whose content is deeply unpredictable. In the sports pages of a newspaper, an advertiser knows roughly what kind of material its ads will be running next to. But an enormous, highly visible brand may not want to risk seeing its ad wind up on a page such as that run by the actual Facebook group "I've Had Sex with Someone on Facebook," which at press time had 59,353 members. Or consider the MySpace profile (turned up after about two minutes on the site) of 18-year-old "Nikki AKA Death Angel!," which is adorned with the motto "Don't fuckin fuck with ninjette bitch we'll cut ur fuckin head off an give it to ur momma."

This is not content that commands high rates, although certain buyers mind less. "Right now, the low-hanging fruit is entertainment, because they're agnostic about content adjacency," says Goldstein. Indeed, Nikki's badass profile features an ad for the Warner Bros. film Get Smart. But even entertainment companies are steering clear of the user-generated communities offered by Ning and KickApps. "It's not a controllable universe right now, with the porn sites and such," Ruxin says. "It's a blind buy."

Not everyone is so pessimistic. Andrew Braccia, a partner at Accel, one of Facebook's early investors, thinks advertisers will eventually become more accepting of the "breathing, dynamic" nature of social networking and grow to understand that its unpredictability is part of its allure. And Facebook's Palihapitiya, perhaps naively, doesn't seem to think the adjacency problem will arise much on his site; Facebook, he says, has "a tremendous amount of user content moderation, with a very simple mechanism for flagging inappropriate material."

Users' ideas of what's appropriate are hardly the same as advertisers', though. Such arguments may not be enough to sway the enormous, image-conscious brands that drive the majority of the advertising market. And Palihapitiya, deliberately or otherwise, may be missing the point: advertisers dislike rude content not merely because it might reflect badly on their brands, but because people reading such stuff are probably not thinking about buying many things that advertisers are selling.

Still, backers of social networking feel strongly that so many eyeballs must have value. Braccia points out that while more than 6 percent of advertising dollars are spent online, 20 percent of media consumption now happens there. "It's a significant opportunity," he says. "We're so young, so in our infancy here."

"These sites are no different from traditional media properties," says Paul Kedrosky, who writes Infectious Greed, a much-read blog on venture capital and the Internet. "We're holding these sites to an absurd standard. The advertising allocations will follow the consumer, and right now they're badly out of whack."

Roger McNamee remains convinced that Facebook is too alluring, too useful, and too established not to be profitable somehow. The answer is out there, even if he doesn't have it. "Someone," says McNamee, "is going to have to get creative. I take it on faith that it will emerge. After all, I'm an investor. I'm hopelessly biased."

Marc Canter has a few ideas. Canter, who cofounded ­MacroMedia, is now CEO of the company that produces the social-networking tool PeopleAggregator, which aims to allow communities, tools, search engines, and the rest of Web 2.0 to interconnect in one giant open mesh. He imagines ads of all kinds making up only about a third of revenue, with profits coming from a "long tail" of sources--from Craig's List-style marketplaces to on-demand music downloads to branded apparel to ad-free premium services.

Chamath Palihapitiya expects Facebook to generate revenue by selling a variety of such services to users. The site has rolled out a "gift" program, in which friends spend real money to "give" friends virtual items, such as an image of a box of tissues with a get-well note. He also suggests that Facebook may at some point see reve­nue from ads served through applications on its site, a growing and potentially major source of income from which it currently gets nothing.

Perhaps most optimistic of all is venture capitalist Ron ­Conway, the subject of the book The Godfather of Silicon Valley, who has invested in Google, PayPal, and dozens of Web 2.0 companies. "MySpace projected it would do a billion dollars' worth of reve­nue this year. They came up short and did $800 million," he says. "Rupert Murdoch only paid $570 million for the whole thing. It's been called the best acquisition of all time. I think Facebook is a couple of years behind MySpace but on the same trajectory. It's a hugely monetizable business. I think it's a slam dunk."

Can social-networking sites continue to make significant inroads into the U.S. online advertising market? The outlook is uncertain. A shaky economy and setbacks in ­targeted-advertising initiatives have caused leading online marketing research firm eMarketer to project more modest revenue growth for social-networking sites over the next four years than it had previously predicted.

Social networking is a global phenomenon, and reaching users outside the United States will become increasingly important as advertising dollars flow to Western Europe, Asia, and beyond.

Things Fall Apart
The ghosts of vanished giants haunt social networking. So many formerly great Internet companies are struggling or dead. Consider CompuServe, AOL, Netscape, Napster--even Yahoo. Lycos, a search engine that was sold to Terra Networks in 2000 for $12.5 billion, was sold to a Korean firm for $95 million four years later.

What CompuServe and many of the others have in common is that they were portals: gateways to the Web. Facebook wants to be something similar: more than just a useful and fun social tool but the first page people open on the Web, and the platform they use for all their other communication on the Internet.

As would-be portals, however, social-networking sites are vulnerable to one of the problems that brought down those earlier Internet businesses. The portals were "walled gardens" where inexperienced Internet users congregated for a time but where they became restless at last--leaving for the wider, wilder Web. Facebook and MySpace understand this and are now struggling to achieve an appropriate balance between openness and control.

They're also struggling with faddishness. Danah Boyd, a doctoral candidate at the University of California, Berkeley, studies social networking as a cultural phenomenon. She describes online hot spots as though they were popular pubs. "It's supercool when all of your friends go there," she says. "Then all sorts of other people come in. Even if the pub doesn't start feeling physically crowded, it starts feeling socially crowded when your ex is at the other end of the bar talking to some creep who brought his fellow gang members. How long until you say, 'Enough--I'm outta here'?"

Home Page
Several attendees at EconSM took the same flight home, and anyone paying attention on that red-eye from Los Angeles to New York got a lesson on social networking's place in modern life.

Just before the plane began its descent, a 28-year-old woman named Erin fainted on the way to the bathroom. She was possibly overtired, or maybe weirded out by the inhumane crush of economy class. Even she didn't really know what happened. By the time we were on the runway, she had regained her senses. Her first question to the flight attendant was, "Did anyone get my phone?"

As soon as the attendant handed her her iPhone, she opened it up and went right to her Facebook account. She wasn't looking for ads and she wouldn't have noticed one, unless it annoyed her by getting in the way. She wanted to reach her friends, and that was all.

Bryant Urstadt has written for Rolling Stone and Harper's.

Copyright Technology Review 2008.

Posted by 워렌팍 - 가치를 만드는 지식 혁신가
Technology Review는 "Social Networking 3.0"라는 기사를 통해 3세대 Social Network Service를 소개하고 있다.

1세대는 닷컴붐이 끝나가기 시작할때 Sixdegrees.com같은 무료기반의 SNS서비스로서 기술적인 한계에 의해서 사용자들이 관계를 구축하는데 한계가 있었고 수익모델이 결여되었다.

2세대는 구글의 ADsense 및 키워드 광고등의 온라인 광고시작이 활성화된 시기인 2001~2004년에 오픈한 서비스들로 가입비가 아닌 고객의 프로필을 기반한 안정적인 광고수익을 확보할 수 있어 벤처캐피탈의 투자가 집중되었다. 2세대 서비스는 사용자들이 프로필을 작성하여 친구초대에 의하여 링크로 연결되어 회원들이 얼마나 많은 친구 관계를 구축하느냐가 중요한 성공요소였다. 이 시기에 LinkedIn, Friendster등이 관계네트워크를 기반한 Job-Searching을 통한 신규 수익모델이나 정보를 공유할 수 있는 블로그 기능을 제공해 성장했다.

3세대는 최신 커뮤니케이션 기술로 무장하여 2세대 SNS과 경쟁하고 있다. 대표적인 서비스인 "iMeem"는 인스턴트 메신저를 기반
으로 친구관계를 맺어 기본적인 메신저 대화 및 블로그 운영, 사진,비디어, 팝캐스팅을 P2P서비스처럼 친구들과 공유할 수 있다.

Friday, November 18, 2005
Social Networking 3.0
The third generation of social-networking technology has hit the Web, and it's about content as much as contacts.
By Wade Roush

If there were a competition for "Internet Buzzword of the Year," last year's winner would have been "social networking," as a cohort of companies such as Ryze, Tribe, LinkedIn, Friendster, Spoke, and Visible Path, rolled out new or improved services that let Web users create online mirrors of their circle of real-life acquaintances. The idea was mainly to let users build online profiles that advertised their interests and to help them connect with friends and friends-of-friends around one of those interests -- whether it be finding a job, making a sale, or repairing an old motorcycle.

But with the exception of Friendster and Myspace, the initial response to these services among average Internet users was sluggish. Many users signed up for one or more services, created online profiles, formed connections with a few acquaintances, and drifted away, uncertain about how to use the networks.

But today, not only have all of these companies survived; they're experiencing record growth, introducing new technology and new money-making features, and being joined by sophisticated new competitors such as iMeem. Moreover, they're joining the parade of sites offering "rich media" -- the big buzzword of 2005 -- by encouraging users to share their own content online, including photos, videos, music, and other digital files.

Social networking, in other words, is finally becoming a real business with a convincing product.

"A year ago a lot of our users were pretty unclear about what they could do," says Konstantin Guericke, co-founder and vice president of marketing at LinkedIn, a social network focusing on business connections. "They knew they were getting invitations to join the network, and they knew how to accept invitations, and sometimes they sent their own invitations -- but they weren't sure what else to do with that."

A year later, LinkedIn's membership has grown from 1 million to 4.2 million; users are conducting 5 million searches a month for potential contacts within their own networks, and the company has launched several revenue-producing features, such as paid subscription options that allow members to search profiles outside their immediate circle of friends and friends-of-friends.

Rather than simply passing requests for introductions back and forth through their networks -- which was about all they could do a year ago -- LinkedIn members are using their networks for practical purposes, like finding job candidates, locating business and legal services, and coordinating group activities.

What makes all this possible, says Guericke, is the user-generated content LinkedIn holds in its members' profiles, such as resumes and testimonials. "First, we are a search engine. But second, we are a publishing platform -- about yourself and what other people say about you," Guericke says. "It just creates a more powerful business."

Second Coming

Psychologist Stanley Milgram established in the 1960s that any two people on earth are connected to each other by a series of, on average, six intermediaries -- an idea that was later popularized through John Guare's play "Six Degrees of Separation" and the subsequent film adaptation. By the late 1990s, entrepreneurs realized that the Internet could become the perfect medium for connecting people to others beyond their first- or second-degree acquaintances.

But the first generation of free social-networking websites, such as, dried up even before the dot-com boom ended. That was partly because, like most other dot-coms, the sites lacked revenue-producing business models. But it was also because the technology hadn't evolved into a usable form. Users had little idea what they could actually accomplish through their online social networks.

The post-crash boom in online advertising -- and especially the 2001 advent of Google's AdWords advertising program, which shows keyword-based ads alongside content such as users' profiles -- finally gave social-networking companies a way to convert website traffic into dollars, without having to take the perilous step of charging members a subscription fee. As many as 30 social-networking startups were launched between 2001 and 2004, backed by tens of millions of dollars in venture capital. (See "Internetworking," April 2004.)

But sites like LinkedIn, Friendster, and Tribe still offered little more than the ability to create online profiles and invite friends to link to those profiles. Members raced to see how many connections they could build, as if the size of one's network were more important than the quality of its members.

By late 2004 or early 2005, the novelty had begun to wear off for some. "When [LinkedIn] was first created, I thought it was interesting and thought it'd be beneficial to have my information there, both for me to contact people and for them to contact me," wrote Russell Beattie, a software developer at Yahoo, in an April 2005 blog entry. "I gave it plenty of time to be useful, but it just hasn't done anything at all for my life."

At that very moment, however, LinkedIn and other companies were beginnning to add features that made the value of an online social network clearer, at least for some users. In March, for example, LinkedIn launched a feature that helps job seekers find contacts at companies where they want to work; LinkedIn makes money by charging $10 for each message a user wants to send to a potential employer through the network. Other new revenue-generating features include a job-posting service and LinkedIn for Groups, which creates online networks confined to organizations such as college alumni associations.

Friendster, for its part, boasted by far the largest social network online by 2004, with over ten million users. Then the company endured a painful user backlash over poor site performance and a plague of hoax profiles called "fakesters." But now Friendster is staging a comeback, in part by introducing a raft of services that help members trade digital content.

"We've listened to our user base very closely, and we're also paying attention to what the competition is doing, and we've formulated a new strategy that is really about personal media," says Jeff Roberto, a marketing manager at Friendster. For example, users can now create blogs, control the appearance of their profiles, upload up to 50 photos, watch slide shows of the photos most recently uploaded by their friends, post classified ads that link back to their profiles, and share audio and video files stored on their PCs using peer-to-peer technology provided by Grouper.

"The uptake we've seen has been incredible," Friendster CEO Taek Kwon said in October, about a month after the new features were introduced. "We've seen substantial increases in media being uploaded, profiles being customized, and people posting classifieds."

Friendster's current membership: 21 million, with 9 million of those users returning to the site every month.

Friends or Buddies?

The newest players in social networking, such as Palo Alto, CA-based iMeem, may have a long way to go to catch up with the likes of Friendster -- but their technology is already leapfrogging that of their older competitors.

iMeem hopes to attract members by building all their activities not around a virtual representation of their social network, but around instant messaging technology. Indeed, the company's name is a combination of IM, for instant messaging, and "meme," meaning an idea spreading through a network.

As an undergraduate in psychology at Stanford University, iMeem co-founder and CEO Dalton Caldwell wrote a thesis about instant messaging's role in workplace collaboration. The wave of social networking applications that emerged around 2001 intrigued him, he says, but "from the first time I saw this stuff, I didn't think it was interactive enough. It was too much just lurking and watching people from afar, but not in real time. It seemed to me the center of the universe [in a social network] should be a buddy list rather than a friends list."

That's exactly how iMeem works. A downloadable application similar to Yahoo Instant Messenger or MSN Messenger, iMeem is built around a buddy-list window that shows a user which of her friends are online. From that window, she can send and receive instant messages, join group chats, keep a blog, and share photos, videos, podcasts, playlists, and the like with other users using a peer-to-peer system related to the technology behind the original Napster.

Aggregating all of these functions into one program sounds like a recipe for information overload. But Caldwell believes that iMeem users will act as each others' media critics, perhaps bringing real effectiveness to the much-heralded idea of "collaborative filtering." "There's too much stuff out there," Caldwell says. "Too much data, too much content, too many blogs. Collaborative filtering is one of the most important things that's happened on the Web over the past couple of years. It's holding back the tide of overstimulation."

It could be argued, of course, that supplementing one's everyday, real-life interactions with virtual ones through social-networking sites simply adds to the overstimulation. But if users weren't gaining some benefit from their online networks, they wouldn't be signing up by the millions. In the future, membership in an online social network may seem as commonplace as belonging to a more traditional organization like the Boy Scouts, the PTA, or the local Neighborhood Watch. The only difference? By ponying up a subscription fee or enduring online ads, you'll be paying for the pleasure.

Copyright Technology Review 2005.

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아마도 우리나라 20대의 대부분과 30대의 많은 이들이 매일 한 번은 싸이월드에 접속해서 자기 싸이든 남의 싸이든 구경을 하긴 할 것임이 분명하다. 지금은 워낙에 많이들 하고 있기 때문에 그 정도가 예전만하지는 않을 것이다. 예전에 싸이월드가 한참 인기를 끌었을 때는 매일 신문에도 나오고 사람들이 모이면 싸이가 어쩌구 저쩌구 했다. 연예인들까지 가세하다보니 그 인기는 더욱더 높아져만 갔지비.

이건 비단 우리나라 뿐만 아니다. 아니 정확히 말하면 미국에서 먼저 태어났다고 해야하나? 미국에도 싸이월드와 같은 SNS가 큰 인기다. 몇 일 전에는 MS가 Facebook의 지분을 인수해서 이슈가 되었을 정도였으니 말이다. myspaceFacebook을 비롯하여, Apprentice에 출연한 한국인 - 이름이 뭐였더라 - 도 SNS를 운영한다고 했다 - 쥬당고? 였던가? 뭐였더라..뭐 이런 비스무리한 이름이었음. 또 몇 일 전에는 우리나라에서도 Facebook 비슷한 서비스를 어떤 젊은이들 둘이서 개발해서 서강대를 대상으로 베타테스팅을 거친 후 본격적으로 서비스할 것이라는 신문기사를 봤다.

뭐가 먼저인지 모르겠지만..SNS - Social Network Service - 는 돈벌이용이 아닌 학계에서도 많은 관심을 가지고 있다고 한다. 사회학, 경제학, 경영학 등 다양한 학문에서 SNS에 대한 연구를 하고 있고, 세계 최고의 경영대학원인 HBS(Harvard Business School)에서는 그들의 Case Study용으로 우리나라의 싸이월드를 사용하겠다며 우리학교의 한상만 교수님과 함께 자료를 만들기 시작했다고 한다.
美 MBA가 공부하는 한국기업들 ②<인터뷰> 한상만 성균관대 경영학부 교수
하버드大 ‘싸이’를 배운다

그리고 경제학에서도 SNS에 대한 꽤 많은 연구가 진행 중이라고 한다. 어젠가? 싸이월드에 있는 The Economist라는 클럽에 이와 관련한 연구를 하는 젊은 학자가 사망했다는 내용과 함께 경제학에서 SNS에 대한 연구가 어떻게 진행되고 있는지에 대한 글이 올라온 것을 흥미있게 읽었다. 익명글로 올라와서 글쓴 분이 누군지 모르지만, 여튼 이렇게나마 출처를 밝히고자 한다. 이것도 천재들이나 하는 것이로군화~

경제학에서의 SN 연구 from The Economist

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