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2 reasons most social networks aren’t successful and 3 things you can do about it

2009 August 11
by Greg

Although everyone has been amazed by the explosive power of social networks generally, many have been disappointed that their own foray  hasn’t been successful.  Moreover, even the most successful social networks with massive audiences have a hard time making money.

There are many reasons why this is so, but here are two:

The Problem of confirmation: While the successes are obvious, the failures are obscure.  Everybody notices big successes like Facebook, LinkedIn, Twitter, etc., but there is little documentation of the many failures.  Classmates.com has been around since the ‘90’s, and Yahoo! 360 was also an early entrant, while neither ever gained any traction.  How many others?  Who knows?

Low value audience: An impression on a social network can be worth as little as 1/20th the value of an impression on a top branded content site.  While this is confusing for many, there are some good reasons for it:

-          Eyeballs aren’t consumers: There is a reason that drug dealers hang out at rock concerts but not university libraries.  Consumer value is derived not just from identity, but even more so from intention.  While a woman might be a loving mother of three as well as an avid Metallica fan and an enthusiastic snowboarder, at the PTA meeting she’s focused on her kids and not her other interests.

-          Intrusion: On sites with branded content, consumers understand that marketers are paying the freight.  However, social networks are consumer driven and they resent intrusion (just ask Facebook!).  People will accept ads in their TV, but don’t want advertisers breaking into their homes.

-          Engagement: A media brand is valuable because people believe in it.  Part of what advertisers are paying for is an association with that brand.

So while social networks are enormously powerful, basing a business in social media is far from a sure thing.  There are three ways you can improve your odds:

Cluster targeting: Social media’s biggest successes started out in small communities.  Facebook was initially limited to one university; MySpace became popular first in the incestual LA music scene.  For a social network to be successful it first has to saturate one community before it can effectively spread to others (there are good mathematical reasons, but I won’t discuss them here).

Aggregation: By adopting open architecture and allowing people to keep their friends when they use competing social networks, you not only do your consumers a service you actually increase the value on your own network (again, I won’t go into the math).

Integration: By integrating social components into branded content, you get the best of both worlds.  Audiences become more engaged and can add to the discussion, ad inventory increases and, best of all, advertisers will let you keep those high rates!

I’m sure others have ideas about this.  I’d love to hear them!

– Greg

37 Responses leave one →
  1. Olga permalink
    August 11, 2009

    The problem with a lot of businesses now is that they go with a flow and jump into the “cool social media thing” without properly evaluating what value it brings to the business. Especially in comparison to other digital activities which can be considered “boring”, but in fact are more effective.

    Good point about different intent for different media and how it affects advertising effectiveness. With social media wave it is actually forgotten that people come to places like Facebook to talk to each other and not learn more about another brand.

    [Reply]

  2. Jim Fox permalink
    August 11, 2009

    Greg:

    Interesting points I would say classmates was mildy successful they got some of my money. I think social networks is just about ready to take over news papers as my primary source of information. I am been thinking about local aspect as well. I would not mind seeing some very targeted ad for local goods and services.

    Jim

    [Reply]

  3. August 11, 2009

    Jim,

    Proximity advertising seems to be getting some traction. One company to watch is Loopt.com. The CEO was recently on Charlie Rose

    http://www.charlierose.com/guest/view/6706

    – Greg

    [Reply]

  4. August 17, 2009

    Another problem is that business owners expect Social Media channels to help fix a broken business. Simply won’t happen. See http://www.bizmeds.biz/136/what-social-networking-won%E2%80%99t-do-for-you/ for more details.

    [Reply]

    Greg Reply:

    Dennis,

    Good point and nice blog:-))

    – Greg

    [Reply]

  5. August 20, 2009

    Good points, Greg (and your readers’ replies).
    Your ‘cluster targeting’ idea is similar to another concept I continue to come across – the idea of the ‘niche’. To rightly identify and define the intended niche audience is likely a big factor in the success of any online venture.

    Collier

    [Reply]

    Greg Reply:

    Collier,

    Of course, your right. However in social networks the issue is a bit more severe. I’ll have an upcoming post about it.

    Thanks for your comment.

    – Greg

    [Reply]

  6. August 22, 2009

    Very good points. Even in social media marketing, the basic marketing principles still apply. You need to have a good product and target the right market at the right time whether it be via social media or more traditional forms of marketing/advertising.

    [Reply]

    Greg Reply:

    Grace,

    Good points. Thanks for your comment:-))

    – Greg

    [Reply]

  7. August 26, 2009

    In the first paragraph, you equate success with making money. I’m not sure I agree with that. If you mean, specifically, ‘success’ equals ‘money’ throoughout the rest of the post, then I think you have some sound arguements.

    I did some detailed research into this exact phenomenon – if you’re interested, let me know and I can send you the paper I wrote.

    In the meantime, check out this list of some failed social networks, and why: http://www.bivingsreport.com/2008/a-look-at-failed-social-networks/

    [Reply]

    Greg Reply:

    Alan,

    Thank you for your comment.

    I do think profits are a good indicator for success (and certainly for investors it is). However, there are other indicators as well, such as the ability to grow and retain audience and many social networks fail on that measure too. Yahoo’s 360 initiative was scrapped, so I would say that was a failure (although their new aggregation strategy seems to be considerably more successful).

    – Greg

    [Reply]

  8. peter permalink
    September 3, 2009

    Social media brought the audience much the same way as traditional media did. that made it attractive for companies to deliver their message – economies of scale. The reality is that ad money pays for or subsidizes output , that’s taken for granted with consumers of trad media, but with social networking its seen as an intrusion. There is no free lunch. The real challenge is for advertisers to make output appealing and dare I say entertaining. My kids use Facebook etc and they have no concept of how its paid for or even that it needs to be paid for by some one(thing) somewhere. If you cannot make the cost/benefit association with users you have a huge problem.

    Technology is making all the running, unfortunately the philosophical and psychological output is a little thin.

    Fantastic blog by the way – a voice of reason amongst the noise.

    [Reply]

    Greg Reply:

    Thank you, Peter. Come back soon:-)

    – Greg

    [Reply]

  9. Tim permalink
    September 4, 2009

    I was just having this discussion with someone the other day. I like your suggestion about Aggregation. It would be great if I could automatically pull over my 3000 myspace friends to facebook and vice versa. As a music producer, I am a huge fan of myspace and sort of felt forced to join facebook. Now of course its all I use and what everyone else I know uses. It’s actually a bit frustrating because facebook provides no music player apps. Well… actually they do, but its total crap. Unfortunately MySpace seems like a ghost town these days.

    Back to the subject at hand. I get so many invites to clubs and parties etc on facebook, I am surprised marketers haven’t found a way to offer a sponsorship solution for these events. Example: I set up my event and then am provided a selection of advertisers to choose from to place a logo or bug on the invite for branding or discount. The advertiser would of course need to come up with an incentive for the user to use the bug, like a discount awards program, a list of additional users to invite or just being plain cool. The point being, this would be opt in marketing in a none intrusive way. If its subtle enough and positioned correctly, I don’t think the users would blink an eye if an advertiser logo appeared on the event invite. But I feel it will only be accepted by the users if the creator of the event puts it there. Perhaps this has already been tried and failed.

    I am surprised twitter was hasn’t really been discussed. I have yet to understand how its going to make real money once the hype dies down.

    [Reply]

    Greg Reply:

    Tim,

    All good points!

    – Greg

    [Reply]

  10. September 4, 2009

    Do we learn anything from this about the essentials of creating a branded community site?

    There are many successful ones, although 90% seem to fail.

    They are not looking to become FB they are looking to more focused goals around service, innovation, conversation, loyalty, advocacy etc.

    What do you think are the core rules which apply here?

    Walter Adamson @g2m

    [Reply]

    Greg Reply:

    Walter,

    That’s a very big question. I think that if there are two core principles they are the following:

    1. Strength of communities: Many social networks make the mistake of spreading themselves to thin, too fast.
    2. Allow mixing: If you let people network out of their discreet communities, they will.

    Obviously, there is a lot more to it than that. Open architecture helps a lot (but is technically very difficult if the site core is going to be kept safe). Also, trial and error plays a big part. Users will tell you what they like and don’t like, so making a lot of small, incremental improvements and reacting quickly to user feedback is very important as well.

    I hope this was helpful. I’m going to be writing a lot more about these issues. (The Monday post will “The Forces that Drive Social Networks”).

    Thank you for visiting Digital Tonto and thank you for commenting:-))

    – Greg

    [Reply]

  11. Kevin permalink
    September 5, 2009

    It may seem like an odd point since social media is geared at integration and attracting a mass audience, however like all groups in society (trait) we segregate, splinter off. I think this is the biggest hurdle with social media sites, we use it for our inner circle and pretend we want to engage in an outer circle, It’s much the same as religion, the intent is to unite through faith, but segregates and even exclude’s by becoming secular. (Sorry about throwing in the religion card). On the flip side ‘LinkedIn’ works in both directions, since its fuel, or a need. It’s a wee bit of a corundum on how to make social media profitable unless you steer it in a direction where possible revenue streams are best suited, however this would encompass loosing numbers, thus ranking, thus the benefit of having volume traffic & penetration to potential revenue streams like advertizing, a catch 22. I don’t think the future will give as large a user group as the current trend Social networking sites, unless the Chinese make one just for Chinese, it’s a numbers thing. However I do see scope for mobile social media platforms and telco’s being the bridges on a global scale, well the internet trend is moving mobile , so I expect to see ideas like MobFace (Not just for the Mafia) and Cellbook (Not a prison Liberian) popping up (Made those name up in jest!), and the big boys (Facebook, my space, Linkedin) are all providing mobile content and use. If I was a mobile provider and wanted to move into a social media concept and I had a 100 million potential client base as my mobile subscribers already, that’s what I would do, just add a social network within my communications network, offer air time or free sms/txt for registering and free txt usage per month and Bingo I have revenue and a huge client base with retention.

    [Reply]

    Greg Reply:

    Kevin,

    Interesting perspective. Thanks.

    – Greg

    [Reply]

  12. Ankur B permalink
    September 6, 2009

    Greg,

    Your blog was very relevant for me as I am in the early days of creating a social network site. I have a couple of related questions, if you could point to a few answers.

    * As my social network site evolves, what metrics should I track to assess whether we are heading for success or towards failure?

    * I plan to raise a small funding of about $50,000 to $100,000 in next 3 to 6 months to help pay my three mates and myself a bit of salary and to possibly strengthen development, marketing and ad sales. At what point in the above mentioned metrics I should approach my friends/family for this funding?

    * At the point of raising this funding, what would be the parameters for valuation? How much of my company I should share with the first stage investor?

    * Lastly, over a medium/long term, how is a social network site valued (for raising commercial Venture Capital funding)? I heard recently that Facebook was valued in billions of dollars — why?

    Thanks, Ankur

    [Reply]

    Greg Reply:

    Ankur,

    First of all, my next post is “The Primal Forces That Drive Social Networks,” so hopefully that will be helpful. It should be up in a few hours.

    As to your questions:

    1. Metrics: Firstly, you should analyze the metrics as on a conventional site. Audience, page views, revenues, etc. However, there are two metrics specific to Social Networks.

    – Cluster Coefficient: This will give you an idea of how cohesive your network is. It’s pretty simple, just how many links you have in your network as a percentage of total potential links (which you can calculate by n(n-1)/2)

    – Path Links: This will be the average degrees of separation in your network. It’s much more difficult to calculate and don’t even try to do it directly or you’ll burn your servers. Take a random sample of 300 or whatever you can manage. I’m sure there are better algorithms to us, but they’re beyond my feeble mathematical skills.

    The path lengths should grow as your network grows, and then fall very quickly. When they finally fall, you are on your way!

    Finally, you should come up with metrics for specific objectives. If you want to grow groups, measure that. If you want to grow uploads, measure uploads. It will take a bit of trial and error for you to figure out what is really important for you.

    Valuation: This is a very murky topic. Generally speaking, investors try to find an analogue and price relative to that. The valuation can be based on profits, revenues, audience, registered users, etc. Although a lot of numbers fly around, the truth is that the process is very subjective. When we were looking to acquire a social network, my approach was to calculate the marketing value of the inventory, but that’s just my own personal view.

    With regards to approaching friends and family, I guess that depends on how lovable you are:-)

    Finally, I would encourage you to read “6 Degrees” by Watts and “Linked” by Barabasi. Both are primary network theory pioneers and give accounts that are much more readable and informative than journalists write.

    I hope this was helpful.

    – Greg

    [Reply]

  13. September 13, 2009

    Greg,

    I came across your your post in LinkedIn linking to this article. Thanks for sharing, your insights on how social media sites can thrive in this new environment.

    On community-building, I think more and more brands are realizing that the only way to go is to start building small communities – online tribes – of customers and supporters/evangelists, where your response can be immediate and personalized, and practically every one knows each other by name. Each of these millions of tribes being built or planned right now would need a home, be it an in-house forum or a network hosted by a social media site like Facebook.

    A tribe would eventually choose a host based on convenience (members are already using it, easy navigation, rapid sharing of communication, etc.), integration (Facebook Connect, Google Connect), and to some extent, available applications for members to use while being logged on to the network. Facebook excels in all three, and Ning has recognized the importance of apps (hence, the announcement last week on the opening of Ning apps to all 1.5 million networks using Ning).

    I think new network hosts or social media sites trying to make it, would do well by working on integrating these 3 core features and focusing on niches and communities trying to find a home, rather than competing head-on with the giant networks for the broad market.

    Manny

    [Reply]

    Greg Reply:

    Manny,

    Good points. One of the biggest mistakes that business make when they attempt to start social media is that they go too broad. There has been research done on epidemics that show how the math works. I will have a post about it later this fall.

    – Greg

    [Reply]

  14. September 14, 2009

    Greg,

    Interesting points and a lot of good feedback.

    I think there are two more points to consider. I think one of the biggest concerns is not that the social media isn’t successful, is more that it isn’t being measured properly. There are a few dimensions of measuring success in a social media activity:

    1) what are the topics being discussed (and potentially responded to by the brand). This is simply measuring the types of comments made in conjunction with the brand.

    2) what are the click-thru’s generated. This can be a good metric, but it is often wrong and misses out on point three. Just as many marketers don’t understand the impact of TV (because there is no direct response code as there might be with a dedicated landing page or redemption code.) they don’t understand the impact of social media.

    3) social media has a brand/emotional impact. It drives engagement with the brand. It drives impressions that are consumer generated (and potentially brand influenced) that deliver input to the consumer decision-making process. Consumers make purchase decisions, based on the emotional attributes and preferences they assign to the brand and the category. (Take a look at the post I did at: http://www.marketingtactegy.com/blog/2009/06/the-long-term-value-of-advertising.html). If you look at social media in this light, then just because the marketing doesn’t drive click-thru’s doesn’t mean it isn’t wildly successful.

    Thanks for the great article.

    [Reply]

    Greg Reply:

    Guy,

    Thanks for your comment.

    By unsuccessful I mean that most fail as businesses and many fail to gain significant audience. While there have been a few notable successes in terms of audience, others, such as Yahoo 360 never really got off the ground. Some others, such as Friendster, seemed to go well for a while and then faltered. Of course, most failures are anonymous, but I have seen studies that lists hundreds of failures (none of which I had heard of).

    – Greg

    [Reply]

  15. Sue permalink
    September 17, 2009

    Greg,

    Very well written article. I really enjoyed your thoughts and perspective on social networks. I must admit that my background in traditional media has always made me suspicious of new media is measured. However, I started interacting with social media last year and was intrigued. I’m always looking for new perspectives on “new media” and your article fits the bill.

    I also enjoyed all the thoughtful comments. I’ll definitely be looking for more from you.

    all the best,
    Sue

    [Reply]

    Greg Reply:

    Sue,

    Thanks.

    I actually am getting increasingly concerned about the way traditional media is measures, especially TV. Fragmentation has made ratings for most channels statistically insignificant. Especially in the US, where the industry seems to want to resist the minute-by-minute standard adopted most other places.

    One interesting development is the ability to control frequency in Digital. I wrote about it here: http://www.digitaltonto.com/archives/337

    Thanks for coming by and commenting and thanks again for your kind words.

    – Greg

    [Reply]

  16. September 27, 2009

    All roads lead to one of the big three social networks:
    Facebook: Friends, family, fun, some business, sometimes.
    LinkedIn: Just Business!
    Twitter, you and anyone who follows you. It’s your world in 140 characters or less.

    I came to your blog from your LinkedIn post in Inbound Markerters.
    We’re not connected otherwise, but I liked the title of your post becuase I am marketing myself successfully on Facebook, LinkedIn and Twitter.

    Here’ s another reason why I feel many other social networks failed: They imitated rather than innovate.
    They were not first in the mind of consumers for the category. (From the 22 immutable laws of marketing-the law of leadership-better to be first in the mind of consumers than to be best).

    Even when I met someone in some other network, we somehow connect back to one of the big three.

    What is important to brands or marketers is who, what, when, why and how people join the networks they are on to beging with.

    [Reply]

  17. September 27, 2009

    Take LinkedIn for instance. It is very much a pull-value system. You create an account and hope for the best. The primary limitation there being degrees of separation. The two main benefits: recruiting/being recruited, and central resource for performing due diligence.

    What social networking has not figured out is how to successfully create a push-value system. I’d say Twitter is the nearest to that at the moment. How do you package your value proposition and get it out in front of the right prospects? A singular website, whether a corporate website or a page on a social network, is still a walled garden.

    Regards,

    http://lieflarson.businesscard2.com

    [Reply]

  18. September 28, 2009

    @Lief Larson,

    I don’t understand what you mean by push-value system. Can you explain?

    [Reply]

  19. October 3, 2009

    Great blog-I think that a social media should provide something of value-otherwise when you have facebook for personal and linked in for business..why would you even consider going to another social website? We have created a social network that has been live for two months, and is doing well and growing at a rapid pace. Our Networking Site creates Big Opportunities for Small Business and Consumers!

    TheBIZSociety.com is an online networking community dedicated to helping small businesses grow by bringing the business and the consumer together. Both business owners and consumers are welcome to join. Features such as a business directory, live chat, forums and other useful resources help open doors and create a unique networking environment for businesses. It also allows the consumer to receive more information by connecting directly with other consumers and local business owners. It is the companys mission to be an advocate for small businesses (the back bone of today’s society) and do our part in stimulating the local economy.

    Again-great blog, loved it!

    Kim

    [Reply]

  20. October 18, 2009

    Hello,

    Great article Greg et good comments too.

    You talked about mathematic and social media. Can provide some exemples please !

    I’m looking for mathematical facts about social netwoks for a personal purpose.

    Thanks.

    Amine.

    [Reply]

    Greg Reply:

    Amine,

    Thanks, I’m glad you liked it. What kind of mathematical facts are you looking for? You might want to look here: http://www.digitaltonto.com/2009/forces-drive-social-networks/

    – Greg

    [Reply]

  21. Laura permalink
    July 25, 2013

    I have a really good idea I mean as good as Facebook or even better I’m only 13 so can someone give me some help. Tank You

    [Reply]

    Greg Reply:

    Good luck with it Laura!

    – Greg

    [Reply]

  22. Laura permalink
    July 31, 2013

    Do you actually need a lot of money to get started, and I asked a lot of my family and friends about the idea they said it’s great and would leave Facebook and go to that website. And how long would it take to finish the website. I also believe if Mark Zuckerburg was just a college student and beat Myspace I believe I can do the same thing.

    [Reply]

    Greg Reply:

    Good luck with it.

    – Greg

    [Reply]

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