Monetizing social networking

Mark Rogers describes what he says as the core difficulty in monetizing social networking online.

Really what they are selling is a service as a trusted third party, like eBay.

eBay derives revenue from the fact that it is itself a marketplace and can levy a percentage of every transaction for the trust it brokers. The problem that the social networks have is that there is no underlying financial transaction that they can take a percentage of.

As he points out, you can charge for advertising, like Tribe, or even create a B2B marketplace, as Ecademy has done, but those have their drawbacks, too.

But the closed nature of these networks militates against success in applying this business model. If I am advertising I want to reach the widest possible market, not just an audience of people who belong to my extended social network.

Mark raises some valid points. However, there are underlying financial transactions—it’s just that they’re not brokered by the system. Charging for a social networking service is going to require people to look at longer-term ROI, rather than immediate transactional satisfaction.

But the transactions are there. In an informal survey I took of about 125 active Ryze users a few months ago, about 40% reported having had some sort of profitable transaction with someone met on Ryze. And it just doesn’t take much of a transaction to justify $10 a month or so. If the transactions aren’t there, then I’m inclined to say that it has more to do with how one is using the system than with the system itself.

Networking isn’t an instant-gratification activity, at least not from a purely financial point of view; it’s an investment. Let’s hope that those who are forward-thinking enough to be interested in networking in the first place also have the sense to recognize the fees for these services for what they are: an investment, albeit a relatively small one.