How can social networks make money?


With social networks now big business, what can the companies do to turn free services into hard cash?

Facebook page on an Apple iphone
Over the past month, US Facebook users have been enjoying a selection of Warner Bros blockbusters streamed through the site in exchange for about $4 (£2.45) in Facebook credits.

Facebook takes a 30% cut of each credit spent, much like Apple and its app store.

Mobile “check-ins” increase advertising possibilities of social networks

There are over 400 apps and games where the site’s 500 million users can go on a social spending spree.

It is easy to see how money can be made – a valuation last month valued Facebook at around $50bn (£30.6bn)- more than Warner Bros and almost twice that of computer giant Dell.

Advertising is at the heart of most internet success stories. But in some ways social networks are uniquely engineered as money-making machines.

“Because you’re creating the content and you’re making up the content for free, all that social networking has to do is put the ads next to it,” says Paul Lee, of Deloitte Research.

“There aren’t the costs that say a newspaper would have in paying for the journalists to create the content and then serve the advertising next to it.”

ut crucially, cash is generated by clicks and views. Experience has shown if users do not get the experience they want, they just move on.

“There’s been this pattern where it started with Friendster,” says Jeffrey Mann, of technology research company Gartner.

“It more or less got replaced by MySpace. MySpace more or less got replaced by Facebook. The question is – will Facebook stay on top? So far they seem to have.”

And reaching out to the real world is one way Facebook is trying to guarantee its longevity.

Read more…

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Posted in BBC Reports

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