John Naughton, who writes as The Networker in London’s Observer newspaper is one of my favourite commentators. His piece today (“Why it doesnt pay to advertise to 350 million Facebook users”) is unanswerable in its logic ( and further extends my pessimism of Friday about the survival of traditional publishers. Or anyone else, for that matter.  Here we have, on Facebook, a population larger than the USA, and as Naughton illustrates cogently, there is no evidence yet that anyone can create a commercial exploitation of so many gathered in one place.  When Murdoch bought MySpace, we all agreed that he was moving to tomorrow’s advertising market.  But it isn’t there, and it isn’t there for Facebook or Bebo or anyone else either.  And if it is not advertising then what is it?  How many would be left of that 350 million all telling you what they are doing on Facebook if a Murdochian paywall was erected around the outside?

Naughton’s answer is not many.  He is right.  I feel that there will be scope for sponsorship – “use the Kelloggs Cornflakes analytical tools free if you view the video on how to start the day the healthy way”.  I base my reasoning on the authorities at my alma mater who have decided to sell the naming rights of the Cambridge University Library: Welcome to the Starbucks Seat of Learning.  If you can raise revenue from that, then sponsorship and paid for eyeballs will work anywhere.  But the revenue opportunity is not great, and the Facebook crowd seem so mightily pleased with the resources they have that it is unlikely that they will be tempted by a paid-for upgraded value curve like LinkedIn, where Basic is free, but you pay to see more.  This may only work in a business context.

So if it is not advertising or subscription, and sponsorship is only an ancillary revenue stream, what is going to make these sites margins which justify their valuations (note to Rupert’s auditors : please be particularly careful about how you value MySpace as an ongoing concern in this year’s accounts, since investors hate sudden write-offs).  The answer is that it is value-added services.  Facebook will succeed when it recognizes that social media do not create – they cannibalize.  Facebook is poised to become the planet’s largest single employment and dating agency, levying fees on placement and successful matching in communities that give it enough data to let it predict outcomes and get you a better job or a new life companion.  This will wipe out a host of real and virtual businesses on the way, which is the other qualifying requirement of a successful business model.

Advertising? The thing that is being advertised in social media is The User.  Naughton quotes with approval the ComScore finding that in 2007, around 32% of users clicked a banner ad each month, and this had fallen to 16% in 2009.  In fact 8% of all users are responsible for 85% of all banner clicks on the web.  I am suspicious of research that does not support my own viewpoint, but I see everything to approve in this, especially since it correlates to every other web activity: tiny populations, in relative terms, support the largest online activities.  I have not looked at the figures recently, but two years ago it was clear that some 120,000 lawyers supported the huge law office research systems by accounting for over 80% of the usage.  Pareto rules elsewhere as well.

Finally, can the traditional media still stay in charge by ganging up and owning the means of distribution?  If that means the Flight to the Device evidenced by last week’s Skiff announcement, then I am no more optimistic about that.  I feel that Amazon made a wrong turn with Kindle and is/will have to scramble back towards more open standards.  Skiff is a Hearst “incubation” and is “engaged with newspaper, magazine, book and other publishers around the world”  in order to create a unified distribution methodology so that newspaper and magazine publishers can ” successfully migrate their content to the fast growing e-reading channel, while preserving the key design qualities that help publications differentiate themselves and attract advertisers and subscribers”.

I see the point of this, though I see no evidence that online or device-based readers want the product they are reading to look and feel like its print original.  And I hear that some of the largest media players, including Mr Murdoch himself, are about to scramble aboard at Skiff.  It will need to be more substantial than a skiff.  Something more akin to rowing boat.  And it should include a health warning: in the history of these things, when press magnates are cast adrift in such a rescue vessel without the nourishing diet of advertising and subscriptions that they are used to, someone may just get eaten … and survival of the fattest can no longer be guaranteed.


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1 Comment so far

  1. uberVU - social comments on December 7, 2009 09:54

    Social comments and analytics for this post…

    This post was mentioned on Twitter by dworlock: Can Facebook make money now that its bigger than the USA . Advertising/ subscription won’t work , here is a solution