Where's the Social Network Money?

Among all the discussion of the opening of the social web, one thing continues to be a sticky issue for social networks: the lack of a revenue model. While there is advertising revenue being generated on social networks, it is still a fraction of the amount being generated on sites like Yahoo! and Google. Om Malik points out that the lack of a solid revenue model comes with continued signs that the social networking space is slowing domestically.

While there is continued growth abroad, it is much harder to monetize foreign inventory. As such, the social networking industry is in an interesting position. Social platforms have helped generate more inventory but it has also made it more challenging to monetize that inventory. There are people that have developed creative ad campaigns but unfortunately that’s not filling their entire inventory for an extended period of time.

While Facebook and MySpace have been working on targeted ad solutions to help increase their effective revenue generated per active user, there is still too much inventory and extremely low CPMs for the majority. Either social network inventory will continue to attract cheaper advertising or a new advertising model will be developed to increase the effective CPM.

Other variations of advertise include attempts at monetizing “engagement” but really nothing has been developed to increase returns. Among all the buzz, the limited domestic social network growth means that it’s time to start focusing on new solutions for revenue generation. Do you think the industry will find any new solutions or will social networks continue to generate less valuable inventory?

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