Social Networking Gets a Sanity Check


After years of hype, noise and funding, the social networking sector is finally getting a harsh, but necessary, sanity check.

Today there are numbers out from comScore that indicate plateauing growth for the big two — MySpace and Facebook — in the U.S. Last week, Revision3 canceled “SocialBrew,” an online video show dedicated to social networking. Meanwhile, Monster killed its Tickle social networking service (first reported in April by TechCrunch), following closely on the heels of CondeNast’s shuttering of Flip and Verizon’s decision to close up its virtually unknown network, which had managed to garner a mere 18,000 members. (Verizon has shifted its community to Facebook.)

And these just might be the tip of the iceberg, for there are way too many me-too networks out there failing to find the traction, and hence the volume, needed to grow their revenues. The lack of monetization will only accelerate this process.

Google CEO Eric Schmidt never misses an opportunity to dis the social networking sector, typically by pointing out how hard it is to monetize social media inventory. Which could just be his way of trying to excuse his company’s inking of an exclusive $900 million deal to serve up advertising on News Corp.-owned properties including MySpace.

But Schmidt’s motivation notwithstanding, what he says is true: In a recent report, eMarketer, a N.Y.-based market research agency, lowered its 2008 advertising estimates for U.S. social networks to $1.43 billion from $1.6 billion. They expect Facebook will take in $265 million and MySpace will bring in $755 million, down from earlier projections of $305 million and $850 million, respectively.

I’m not sure how they came up with these new projections, but let’s assume for a moment that they’re right. That means that MySpace and Facebook together will bring in $1.02 billion in U.S. ad revenue, which leaves about $400 million for dozens of other social networks. eMarketer also calculated revenue per unique visitor for some of the big five:

  • Google: $65.55
  • Yahoo: $31.25
  • Microsoft (MSN): $17.74
  • MySpace: $12.85
  • Facebook: $11.79

Now juxtapose these numbers against the U.S. traffic trends. Andrew Chen points out that U.S. visitor traffic for both MySpace and Facebook is beginning to show signs of maturing — and plateauing. The latest comScore data released today only reaffirms Chen’s point of view. Couple the new, lower revenue estimates with the flattening in the growth rate of U.S. visitors, what you end up with are tough times for social networking going forward.

Both MySpace and Facebook are seeing the bulk of their growth overseas, but that traffic is even harder to monetize than traffic in the U.S. Indeed, when it comes to making money on overseas traffic, with the exception of Google and Yahoo, most companies have had a mixed scorecard. What’s more, rather than a service unto itself, social networking is becoming just another feature on many web services.

All of these changes are going to continue to have a negative impact, and not just on all-purpose, also-ran social networks, but on the entire ancillary economy, including widget makers. (See our post on Userplane, the really big widget ad network.)

The way I see it, the market has shifted its focus onto niche social networks, such as those dedicated to sports, music, automobiles and pets. You know, sites like Dogster! They have focused, engaged communities, which means they can attract a higher amount of advertising dollars. (Liz came up with a taxonomy of social networks back in February 2007 that offers up an easy way to understand the nuances of the social networking landscape.)

Not only do they have a purpose, but they don’t depend on hit-or-miss behavioral targeting-based ad systems that many hope will one day turn social networks into a gold mine. After all, if you sell dog food, then everyone on Dogster is a potential customer. As for the rest of the sector, it’s only a matter of time before more companies go the way of Tickle, Verizon and CondeNast’s Flip.

Traffic Stats Graph comScore via Techcrunch.


Mike Samuels

The days of BIG socail networking sites are over. No more facebooks or myspaces will come to past but as stated by another comment smaller more personal site like will thrive. Much like now is also the time to buy stock with the market so low, now is also the time to join smaller networks and make them your own


Niche social networks are a welcome addition to the web. Because they are more narrowly focused, they are better able to serve the needs of their community.

The large generic social networks like Facebook and Myspace are great for keeping in touch with friends, but small social networks offer much more – people just like you who share your same passions.

Qnahealth is a new social network for health related information and support. It’s designed to be friendly and easy to use and is focused around users asking and answering questions and sharing their experiences and knowledge.

We invite everyone to take a look as they explore their online health information options.

We welcome bloggers!

julie knowles

“Over-complicated software and websites are causing users to switch off worldwide, costing tech companies billions in lost revenue. However, a small group of us are trying to get the point across; customer usability is beginning to find support with the biggest and best. Bottom EVERY ONE OF THESE SITES HAS THE WORST SEARCH IMAGINABLE.

Why in the world wouldn’t they use a semantic engine; it’s unbearable.


I can’t tolerate the searc!

Brian Johnson

Some interesting observations here. Maybe the top of the social network mountain is nearing and as soon as it levels, you are going to see the networks who can’t monetize drop off. Niche networks are going to be able to pull down the higher CPM rates because of their targeted audience, but niche networks will also have a more difficult time gaining exposure.

I work at a professional networking website,, that has built communities around industries, locations, political interests to take advantage of common interests and not just throw every person into one big social network that can’t help them.

The next three years will be interesting for web 2.0 social media.



There seems to be a lot new sites popping up out of nowhere but they all have the same ideas. Theres site called which i thought was interesting because not only are they a social network but also a business directory.

Michael Chin

Om — Great post. I think you’re absolutely right about the niche sites. In this discussion context is a very powerful thing. Social features, and the applications that power these, have proven to be an extremely effective way to drive engagement and website growth. Open Social, etc., remove the barriers for web publishers and developers in this respect.

Why the mystery though in making this happen successfully? At the highest level, the value of social media to a web publisher rests in the data, in this case the social graph. Just as any customer research provides insight to drive improved user experiences, editorial programming, advertising, marketing, etc., so does the social graph data–arguably in a more powerful way than any other means (factor in engagement levels online).

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