People always ask me what the most effective way is for monetizing a social network or a social application. My response? Charge people to build the social networks or applications and let them figure it out. The next best way of monetizing a social network site is through branded affiliations. Last night Google appeared to blame their missed earning on one thing: underperforming social networking inventory and an increase in traffic acquisition costs for those sites.
There has been discussion for years now about how challenging it is to make money from social networks due to the stickiness of the sites. Users end up heavily engaged in the sites and as a result they are spending less time clicking on advertisements. Facebook has attempted to combat this issue by serving up more targeted ads and displaying social advertisements through user newsfeeds.
So far, Facebook’s model is unproven and when Zuckerberg spilled the beans yesterday about their projected revenues for 2008 it appears that they don’t expect much of an increase in revenue generated per user. Facebook’s user base is expected to more than double and their revenues will not grow proportionally. I’m not sure if this implies that Facebook expects user growth to slow towards the end of the year but even at a $15 billion valuation, Facebook has some significant challenges ahead.
So far nobody has been able to come up with a solution. If the most effective web monetization company in the world (Google) can’t figure out a way to make money from social networks, it brings up the question of if it is possible. Do you think social networks can be monetized effectively? Are they too engaging?