You Can't Make Money From Social Media - But They Can

The FT reports that "Web 2.0 fails to produce cash".  And it's right.  But only if viewed through the narrow lens of traditional media.  In theory, vast social networks offer buckets of reach and frequency.  Which in media terms means dollars.  But in practice the tiny CPMs don't add up - even when they are scaled across empires such as MySpace.  So the verdict is in.  Web 2.0 might be significant, but Cash 2.0 it is not.  However, if you take off those old-school media goggles for a second and look around, the world looks very different - and much more profitable.  Pro-Blogs, such as Boing-Boing and Craftzine, are gathering under ad networks like John Battelle's Federated Media and charging fat CPMs.  Likewise, Nick Denton's Gawker stable pulls in about $15m per year.  How about Last FM which is doing very nicely thank you selling tunes to its music community?  Or YouTube?  It may not be a lot of money compared to the shekel-printing machine that is AdWords - but it's declaring revenues of $100m this year.  Then there's SixApart which collects small monthly payments from millions of bloggers.  Or Flickr Pro accounts at $25 dollar per year?  Let's not forget Etsy with its 1 million dollar profit in '07.  Or SkinnyCorp's Threadless which is turning over $20m a year by helping its community create T-shirts and then whizzing up the ones they like.  And then there's Craig's List which will generate about $80m revenue in 2008 - with 25 staff and no business plan.  So the FT is right.  If you are counting the Web 2.0 beans using the same old metrics - it's not a place to make money.  However, if you are prepared to try a fresh view and some different dynamics - the modern web is full of treasures.

Comments

[david cushman]

Great post. Thanks - looks like a case of not making money with content, but making money because of it.

[James Cherkoff]

Thanks David, indeed, The Doc's 'Because Effects' come to mind.

[Mike West]

More companies are now viewing web 2.0 and social networking as complimentary to other marketing activity. Some are using Facebook and MySpace for targeted, cost effective, consumer research that feeds into their new product development process. Others like Starbucks and Dell are using web 2.0 to improve customer loyalty and engagement. Both may not generate new cash but they have the potential to save companies a bundle.

[neilperkin]

I so agree with this and have been thinking the same recently what with the peristent headlines about it. I'd bet that most businesses would kill for the employees to earnings ratio that the likes of Facebook operate at.

[James Cherkoff]

Hi Neil, yes, the media badly wants Bubble 2.0 but it's hard to substantiate. There are plenty of web ideas that won't fly but this time around they only cost a few thousand dollars to get going....