So I have had some time to put my web 2.0 experience as the primary researcher, writer (Respectance Blog), and host of Respectance- a Silicon Valley venture capital funded social networking site into perspective.  Here are some of my thoughts on the development, marketing and monetization of such a site.

 As much as the internet pundits hate to acknowledge it, social networking is within the context of the general population, still a niche activity.  General use of social networks is growing daily as broad band and viral penetration continues.  Within the realm of Social Networking there are many ‘flavours‘. There are the big boys FaceBook and myspace, and then there are the myriad of niche sites such as Respectance.  There is something for everyone, but how does any one company find the customers that they need?

Through honest and frank web evangelism I brought our first thousands of members on board.  It was not easy, death and grieving is a taboo subject, to reach out and convince people to share their visceral feelings in order to produce (for our purposes) genuine high value content.  Market research was extensive, design and feel of the site crucial to attracting the target demographic (women 25-50), and of course writing things that people are interested in hearing about in a concise and easy manner.

I ran our SEM campaigns and found that SEM was a great way to bring people in.  Unfortuantely for a startup it’s also a great way to ’send money out’.  The cost/benefit of any SEM campaign must be constantly analysed and CTRs aren’t necessarily the way to measure success.  It may allow you to count the people in the door, but did they stay long enough to have the ‘cup of coffee’?

While I was there we tried many marketing campaigns based on good will agreements with non-profits, attempting penetration of chat rooms, and forums.  Some of the campaigns were successful, many weren’t.  Time lines were tight, budget tight, staffing few.  New people came and brought ideas.  There isn’t a marketing ‘how to’ manual out there yet for this kind of marketing.  What people like, what catches on, it’s all still a very elusive target. 

There is a critical mass of members that any social networking site must have in order to use any of the ‘no fee for service’ monetization models.  Even then it seems making money is not at all easy.

This issue of monetization of any of these sites, even the most successful, is a huge one.  As reported in Techcrunch, in an open call Facebook darling Mark Zuckerberg admitted that although revenues for 2007 were $150 Million (fully 10% of which came from the sales of virtual goods as mentioned in  The Next Web , and from advertising) they still aren’t making money.  If the biggest of the sites can’t make a profit, where does that leave the niche players? 

Monetization on all of these sites comes from the selling premium services, direct advertising, and third party advertising (google ads for example).  Without a steady revenue stream, they aren’t making money.   Monetization of the internet continues to be elusive.  Gaming and retail sales aside, we haven’t yet found the answer. 

Every website is jumping on the social networking bus, even though no one has figured out how to get the riders to pay.  I like to think of the internet like the tax system, at the end of the day there is only one payer regardless of the number of taxes levied.  There is only one user at the end of line, sooner or later they have to pay for the service they get – whether it is through buying premium service, paying higher fees for the real world goods they purchase from companies taking losses on the internet side of things, or from the communications companies that own so much of the internet (Rupert Murdoch’s empire springs to mind, as does Google, Yahoo, and Microsoft). 

Free speech, free thinking, free applications aside we are kidding ourselves when we think things are free.  The cost of the service, if it is to be provided on a stable and ongoing basis, must be paid.  Whether it’s an explicit payment or a hidden one, it’s there.  I like to think of the millions of people who have Flickr accounts (I am one of course).  What will happen the day Flickr dims its lights, and they loose ALL YOUR data?  We will have little right to complain.

I am looking froward to following these businesses and seeing whether they actually do manage to turn a profit.  Buy outs aside, it seems for now revenues will continue to be difficult to come by.