We’ve all seen a lot about Facebook recently and the question of value—can it earn money? That got me thinking about what social networks actually do.
Very briefly: the first social technology was writing, followed much later by printing, postal services and eventually blogs. Communications technology brought us signalling, wired telegraphy, telephony, wireless, radio, TV, recording, mobile phones, text, email and most recently networks and streaming multi-media. Some of this goes over the Internet but there are other communication networks.
(You could say music, fashion, art and other aspects of culture have their own social technology, and that is also true.)
Communications companies earned their revenue from renting lines, call charges and licensing.
By 1995 we had bulletin boards, forums, Usenet, mail lists and the early manifestations of dedicated social networking. Already you could send anything you wanted—sometimes slowly—to anyone who had an Internet address and the tools to open your message (audio, video, etc.). And using various forums you could broadcast to other members, people you didn’t know.
The owners of these services paid for communications infrastructure and connected computing services. They had two sources of revenue: advertising and subscriptions. (Some content—our music, art and literature—was for sale.)
Now, you might think social networking was complete at this point but a bunch of other services came along and—ignoring all that existing technology—called themselves social networks. And they are an odd bunch: somewhere to put your photos (Flickr, etc.), somewhere for short messages (Twitter) and your music page (MySpace, etc.) and so on.
Now, subscriptions and advertising are opposing revenue models online. Advertising pays for eyeballs and subscriptions limit the number. Scale seems to be winning and Facebook has chosen advertising to its 900 million members while Spotify is betting on subscriptions (3 million sold so far). Both also have some “platform” income, but not much. Both have VC and partner income, which is considerable.
(I can also see an argument for including Google in the “social” ecosystem now it promotes its own apps and has abandoned any pretence of neutral search.)
Over last weekend Facebook was valued at more than twice Apple and Google combined in terms of earnings per stock dollar. Which is remarkable because we know what their earnings really are, and Facebook isn’t in the same league. And as far as I can see Facebook adds no value apart from its name and that population of 900 million. Everything else people want to do on a social network is possible a hundred other ways.
During the week Facebook’s value has gone down somewhat, but I doubt this is the big crash. Too many important people have a stake in the idea. But at some point people are bound to ask why Facebook needs to exist at all.