Friday, March 21, 2008

Social networks: popular not profitable

Is it possible that major media companies have spent billions developing, buying and selling something that isn't really a business? The answer is yes, according to a recent article in The Economist, which argues that one should not confuse the popularity of social networks like MySpace and Facebook with a business model.

Comparing social networks to free email programs like Gmail and Hotmail, The Economist rejected high valuations that seem to have become the norm in the space. No doubt the article comes in the wake of AOL's recent decision to spend $850 million on Bebo, a social network that isn't all that popular globally and hardly rates at all in the U.S.

While social networks have been able to sell ads on sites that boast massive page views, even industry insiders like Google co-founder Sergey Brin have confessed that monetizing the space hasn't exactly panned out.

But according to The Economist, a lack of a revenue model likely won't slow down social networks as a phenomenon, given the eagerness of users to find and join new social networks. 

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