Illustration of Derek Powazek by Adam Ellis

What If Social Networks Just Aren’t Profitable?

Here’s the short version: Every community-based site in the history of the web has essentially been a stab at creating a social network. Most of them fail as businesses, with the rare exception of small, lucky communities that become self-sufficient but not exactly prosperous. What if that’s just the way it is?

Here’s the longer version. Let’s start with some seemingly unrelated bullet points. I was dreaming when I wrote this, so forgive me if it goes astray.

  • Before the web, I worked for alternative weekly newspapers. There was conventional wisdom even then that the business of running a weekly paper sucked. But we weren’t in it for the money, we were in it because it was important to the community the weekly served. We made enough from advertising to print the paper and deliver it to the readers. It was very rarely profitable. In the alt newsweekly world of the early 90s, breaking even was considered the success case. We did it anyway.
  • This week it was announced that Digg, once valued in billions, had been sold for 500k. An inglorious end to a once beloved social media darling. Digg was attempting to scratch a particular community itch. It tried to make sharing newsy links social, and you could follow friends, which is the basic element of any social network. It worked, for a time, but it was never profitable.
  • Last month Facebook, certainly the biggest player in the “let’s monetize a social network” game went public and their stock price took an immediate flop and has been bouncing around like a fish out of water ever since. The question on everyone’s mind: How will they make money from all those free members? Without souring the milk, of course.
  • Twitter and Tumblr, both incredibly successful at cultivating their communities, both yet to prove how exactly they’re going to survive as businesses.
  • Last week it was announced that the WELL, an online community that predates the web, was to be sold by its present owner, Salon (a business relationship thats’s always been a head-scratcher to me). The community is currently rallying to buy itself.
  • When I wrote a book about community sites 11 years ago, I included many examples of sites doing it right. Almost all of them have died since. One that hasn’t: MetaFilter, a small community company supporting a small staff that makes money through advertising and membership costs.

Can you see a pattern here?

The flow, as I see it, works like this.

  1. We want to be a social network. The more people in it, the more “value” it has, so we need everyone to join. Because we want everyone to join, we cannot put up a pay barrier, so we have to make money another way. Let’s say advertising. (Note: Most never make it this far.)
  2. Our advertisers want as much data about, and contact with, our users as possible. We want to only allow limited engagement. Either advertiser interest wanes (Flickr), or we coast on our investment (Twitter, Tumblr), or we give in and let the advertisers run the show (pretty much everyone else).
  3. Members become angry at us because we’re selling them out. The exodus begins. There’s always somewhere else to go (see Friendster, MySpace). Go back to step 1.

See it? The bigger you go, the harder the road. Meanwhile, small, focused, and yes, exclusionary community sites flourish. Matt Haughey made several key decisions in the formation of MetaFilter, but the most important one was to limit growth. Hell, for years you couldn’t get an account if you wanted one. After that, they started costing money. When it costs money at the door, that means you don’t have to sell out your members to advertisers. It also means the community stays small, which – surprise! – also leads to healthier communities.

What if we all realized that social networks are a societal good (at least as good as a local alt weekly) but not necessarily good businesses? We’re all desperately hoping that Twitter or Facebook or Tumblr will figure out the secret ingredient that turns a large-scale community of free members into a cash machine. What if we’re all just waiting for the impossible? Like a business that turns water into gold? We’ve got lots of water, we just need to figure out the gold part….

What if we eventually realize that, like the alt weeklies, these are things we do because they should be done, because it’s fun, to make our little community a better place … not because they’re going to be great businesses.

Because so far, when you look at the numbers, that’s just what they are: not great businesses.

The one truly great business born of the web is Google, and not their self-driving cars and the other nonsense that accounts for zero percent of their income. It’s putting small, self-serve ads beside their search results. You and I create those search results with our behavior online, but not directly on Google. And that line between where I’m using my voice (you’re soaking in it) and where it’s being monetized (*cough*) is enough of a separation that it doesn’t bother me. The problem happens when the content creation happens in the same place as the ad deployment. So, of course, that’s exactly what Google’s trying with Google+, to less than stellar results.

My point with this thought experiment is this: What if we designed a social network to be small, self-supporting, and independent from the outset? How would it look, work, and feel? I bet it would come out looking nothing like the ones we’ve got now, the ones still trying to turn water into gold.

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UPDATES:

  • Looks like Digg sold for more than reported. Seems like a complicated deal.
  • I forgot to mention the original social network: the phone book. Not a sexy business.
  • Maciej Ceglowski writes convincingly about the power of charging at the door. See also: Clive Thompson.

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Hi, I’m Derek. I live in San Francisco and make awesome community-centric web stuff. I sometimes post things to Flickr and Twitter. I’m mostly harmless. More.





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