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Monday, 2 March 2009

10 reasons why Facebook, Bebo, Orkut etc... are not profitable


Everytime I visit a startups' meetup, I meet some aspiring entrepreneurs who tell me that they have the next killer app that will take over...

So what is that application you are talking about?...Another social networking site?

I, personally, do not believe that social networking sites make real sustainable revenue. Let me outline some points so that we can discuss and share:


  1. Users registration is free and nobody pays for premium services so don't offer them.
  2. Advertisement is profitable as long as operating expenses stays low.
  3. A sucessfull social networking site (in terms of population) means higher operating expenses.
  4. Users do not click on advertisement and found them quite annoying... This leads to unsuccessfull ads campaign and clients extraction.
  5. Not everyone has an IPhone or PDA. Not even 1% of users access their data on the go and what is the business model here? NOTHING!!! I thought so.
  6. Also, Fan pages and groups are killing advertisements revenue specially on facebook as they are available free of charge.
  7. Because of various laws and regulations, users data cannot be sold to third parties for their own use, another closed revenue stream.
  8. No control over copyrighted material that users upload. This will eventually lead to law-suit which can clause your business.
I suggest that if you planning to start your own social networking site, try to have a real business model and most importantly a business plan. If it makes sense on a business plan, I think traditional lenders will be interested.

If your main goal is to try to sell your business to larger organisation just like Bebo and the rest, then you might have to be more creative. Think what is the difference between MySpace and Facebook? If you site is Facebook compliant then I guess your chances are limited as you become dependent on a bigger player.

I gave 8 reasons as I will let you guys come up with the other 2 reasons. I am sure that this post will make you realise something or two, next time you or a friend are thinking of making a social networking site just concentrate a the business model = revenue stream, before you venture into the wild.

The above are just my opinion and are not based on extensive research but discussion with some VCs, news and blogs.

Twitter is a way of bombarding the world with an endless stream of self-serving mini-messages. According to the click mavens at Hitwise, it's now the 84th most visited site on the web, and co-founder Biz Stone says the company sees twice as much traffic through its APIs.
But its 140-character "Tweets" aren't conducive to advertising. And since it's always been a free service, the pundits can't imagine Twitter ever making money on subscriptions.


Bebo sale
twitter revenue
Social Networks and Profitability

UPDATE - Making money on a social network - BBC News

UPDATE: Are Facebook Ads Going to Zero? Lookery Lowers Its Guarantee to 7.5-Cent CPMs.
Facebook Connect + Facebook Ads = A Social Ad Network


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