The Economist recently published an article on Online Social Networks entitled “Everywhere and Nowhere”.
The article leads with … “ Social Networking will become a ubiquitous feature of online life. That does not mean it is a business.” Moreover, it concludes with … “ Social Networking may end up being everywhere, and yet nowhere.”

Online / Digital Marketing Spend – not a business? Check again. Over $20 billion in revenues in 2007. Amount targeted towards niche social venues? – over $2 billion in 2007 (with this sub-segment projected to grow at a staggering 75% per annum). Why? They build targeted, relevant communities of interest. Conversations aggregate around communities of interest … not brand web sites. Savvy marketers understand the difference.

I’ll ignore for a moment that the article pays superficial attention to monetization (essentially dismisses monetization … “does not mean there is a working revenue model.”) The article goes on to discuss privacy, OpenId, “walled gardens” and “Thunderbird, a cutting-edge open-source e-mail application … “ – and the social utility of an address book. Hmm … focus here, guys. All very interesting shiny objects …

Let’s get back to the issue of monetization. Social Networks do generate revenue. Are they profitable? Different question. Early stage technology companies losing money … sorry, not just a social networking phenomenon. You think the Clean & Green Technology guys are hitting are minting profits at the moment?

For those of us who have been in the technology industry for say, over 20 years, let me make a few observations …

Investors know when to chase large, transformational opportunities … they initially dog-piled into this space generating quick and substantial returns … The game is not over – they now have a better understanding of which models make sense in an evolving market … with a renewed focus on audience aggregation and hyper-targeting.

There is revenue - just a few examples:…

Facebook raises over $350 million in capital … generates massive global audience and ecosystem in less than five years … $240 million in revenues from Microsoft in multi-year advertising deal (as well as a $240 million investment at $15 billion valuation – new way to neutralize a startup, IMHO – overpriced employee stock options anyone?)

LinkedIn … no revenue model? Nope. Check below (independent of the advertising revenues which generate a whopping $75 to $100 cpm (we’re not talking dancing re-fi ad banners here) – why? Highly relevant target audience):

Now, did they hit it out of the park after asking users to pay for premium services when the service was free for years? Nope. Slow uptake. However, customers are now parting with $199.50 to $500 per annum … Enterprises are even forking out on behalf of their sales forces as they can see the value …

Forrester Analysts Charlene Li, Josh Bernoff (refer joint blog at Groundswell) and Jeremiah Owyang at $7,500 to $10,000 per day plus expenses … Jeremiah has one of the most popular blogs in the Social Media space - Web Strateegy by Jeremiah … No monetization going on here? Hhmm, don’t think so. (Just ask Jeremiah if you can post a job on his blog for free)

Quick math – well over $2 billion per annum with dramatic growth projections for an early stage industry … “Does not mean it is a business …” Give me a break.

Remember the early Google days … who would pay for AdWords, AdSense? … Over $7 billion per annum now in revenues … Maybe we should dig up the “how do you monetize search?” articles from the 2000 / 2001 era.

I am constantly reminded by colleagues in the Venture Capital industry - success has a thousand fathers, failure an orphan … we’re not dealing with massive-scale failures yet, albeit with the “bubble” fresh in our recent memory it seems some are quick to declare failure.

IMHO, the new technology which underpins social media will continue to spawn a dramatic transformational change. It doesn’t necessarily mean that any single business model will emerge as the winner. To date, the clear category leader is in ad and sponsorship supported models generating billions. However, it is early in the game. New technologies entering the market including infrastructure and enabling technologies have generated hundreds of millions in revenues already … No revenue opportunity? Don’t think so …

While I also struggled with the $15 billion valuation of Facebook (likely less so than Facebook will) it is wrong to conclude that there is no revenue model here.

FULL DISCLOSURE … My new business, Pseuds, Inc. is absolutely focused on monetization of audiences and communities. Why? We see the revenue opportunity very clearly.

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