Friday, November 9, 2007
Lately, although supremely busy with client work, an upcoming move, and speaking engagement at the beginning of December, there has been something nagging at me about all the hype surrounding new social media and networking sites. To tell the truth, it’s been on my radar for over a year, however, I’m never one to cry wolf. But at this point, it’s really starting to concern me. How can consumer-generated content sites that don’t have a revenue model, outside of advertising, survive? Without advertising or subscriptions, what is their value and revenue stream long-term? Someone has to invest in the actual labour costs to build and maintain the site. People require salaries. The unfortunate part is that so many of these sites are the backbone of so much of social media. If a site isn’t gobbled up by a Microsoft or Google, can they sustain the costs, and when will the V.C. dry up once the acquisitions are unsustainable? I’m sorry, but the price MSFT paid to buy a piece of Facebook, when users clearly hate advertising (data-mining here we come? Which is something we should all be concerned about and could be a potential class-action waiting to happen), is ridiculous. It is so reminiscent of the very end of the dot-com bubble I’m surprised more warning bells aren’t going off.
How much can a company sustain on R&D for the potential of a critical mass to pay-off? Is $1 billion too much? $5 billion?
Based on how the North American economy is doing, I think any V.C. who invests in a niche non-product site without a clear revenue model, and international plan, is nuts.
Now, using the tools that are available for free strategically, or spending a realistic amount on a campaign based on carving out a chunk of your marketing budget is smart because there are potential customers there. But is buying, or investing in this type of site, at inflated prices, wholesale, without a clear ROI-structure a smart move? Is it a data-mining catastrophe waiting to happen, or will people begin to subscribe for the purpose of building a Facebook profile, or start to treat their social networking environment as a search tool with paid results going to MSN, Yahoo, or Google? Will they pay to be a part of the X-brand club? Personally, being the realist and cynic that I am, I opt for door #1… data-mining and more detailed targeting. Also, being the realist and marketer that I am, I don’t necessarily see that as a bad thing from a brand perspective. But will the ordinary Jane?
I am not sure, but I am concerned. I lived through one “bubble” and I really wouldn’t care for another! How long is free social networking without privacy and data-mining concerns sustainable? Will people care and will there be a backlash? Does Microsoft now have access to not only my computer desktop information, but also all my Facebook data? How will they use it? Are our regulations keeping pace? I don’t know… I do care… what do you think?
[photo credit: xdjio on Flickr]