kidmercury

Valleywag today has a post seriously hating on Facebook, basically saying it is intentionally allowing fraudulent advertisers to advertise on its site. Valleywag says this is because Facebook is "losing money with each additional user it adds."

True?

Maybe, maybe not -- I certainly am not enough of a Facebook insider to know WTF the deal is with their profitability or lack thereof. My boy and fellow Rosie O'Donnell fan Marc Andreessen does not seem to be concerned about Facebook's revenue generating potential, as we previously discussed. Is he saying that just for PR (Marc is on the board of directors at Facebook) or is it actually true? Who knows, certainly not I.

What is not really debatable, though, is that social media does not have a clear revenue model yet. Right now they are still going with the traditional CPC/CPM advertising model, i.e. plastering banners on the site. Or they plan on getting acquired, though as the economy worsens, those acquisition opportunities will dry up as well.

Here is the way I see monetization for social media playing out:

1. As we've discussed many times before, the social media revolution is really about influence. For instance, Facebook, Twitter, and all these social networking sites are great for driving revenue for the people using the site. If you have 10,000 followers on Twitter or 5,000 friends on Facebook or a million friends on MySpace, you will be able to monetize that traffic. Simply drop a link to what you are selling and watch the magic happen.

2. Based on this I would expect influencers to end up building their own social network, so that that they can increase their influence and monetize it accordingly. I am, of course, deeply biased as I am pursuing exactly this strategy with my business. Our first serious test site is an example of this concept in action. I am pleased to report that it is working very well. Whether it scales to other niches and how it develops is something that remains to be seen, though of course I remain unrealistically confident, generally acting as though it is a foregone conclusion.

3. Influence comes from publishing quality content for free. Yes, believe it or not, the social media revolution and the publishing revolution are in fact the same thing. The great news for publishers is that the Internet is going to create a lot of money for us, and is going to free us from corporate media, which is what will truly change the world. The bad news for a lot of dot coms is that they are playing as though technology is where the value opportunity is. Instead, content is disrupting technology -- which is why we'll see quality publishers use free/commoditized technology to build the publishing empires of the future. This will be the revenue engine that drives the future of the web.

Implicit in the points mentioned above is that monetization does not require a massive number of users, and that companies need to present value that is NOT dependent upon network effects. In other words, Twitter has no value unless there are lots of people using it. The more people that use it, the more valuable it becomes (which is why even folks like me who find Twitter to be annoying have to use it). How something that requires network effects to have value even gets the engine started these days is something I find to be miraculous (I would have thought eBay/Paypal would be the last ones to get away with that), but as Twitter has proven, it clearly happens. I find this to be a long shot, though. A content-based approach allows a value proposition that does not require network effects. But then, as your content attracts a community, network effects can be leveraged -- at which point you can explore crowdsourcing options to get the most out of those network effects. And with a blogger/trusted media personality in place, managing the crowd -- a key part of the future of labor -- will become easier. This paves the way for the labor revolution that awaits us as corporations collapse and the free agent nation accelerates.