social networking

I would have loved to have summed it up rather simply as that Facebook is a story of accidental success. Zuck started the product to have some fun, and incredibly, five years down the line, the fun has not ended. But, it is not all fun and games and even with its astounding growth, the fact is that Facebook is struggling to find a clear direction in which it should head and it also having trouble finding enough revenues to offset its ever-increasing burn rate.

Facebook has zero value when it is not public: This makes for a world of a difference when you are trying to introduce a set of services on the platform that goes beyond its primary use case. Platforms that are primarily meant for public (restricted, yes, but public still) consumption never fare too well in the private world. This is the reason why you don't see social networking in your email inbox (sorry, Xobini is NOT social networking) and the reason why your online banking service does not have a 'social' aspect to it. The simple reason is that it is counterintuitive.

Facebook's main use is for people to be able to connect with each other, in an environment that allows you to pick and choose the audience. You can use Facebook without any connections, but that would also send the value derived out of using the product spiraling downward. In effect, the main use case for Facebook and the extended world it is trying to embrace work at cross purposes. Facebook is a network that functions on the basis of exclusion, while the newer things it is attempting works best on the basis of inclusion.

So, LinkedIn has been valued at $1 billion and there are questions being raised about it. I think it is quite a fair valuation, in fact, I think it is a bit on the lower side, especially when you compare it to Micorsoft's crazy $15 billion valuation of Facebook and the reasons are as below.

1) The most important asset any online operation has is data and how clean that data is (of spam, spammers and user details). Linkedin pretty much has the purest piece on that count available anywhere on the internet. Almost nobody puts 'Timbuktu' as their location on LinkedIn. They also have pretty accurate data about companies, their size and also the segments the companies are involved in.

2) Community: This is perhaps the least appreciated facet of LinkedIn. They may not have the volume of Yahoo! answers, but the quality and value of answers that are found in LinkedIn is worth a lot.

3) Last one is a no-brainer: They've been profitable for a while now.

business models

Om Malik has posted an entry on how Twitter could monetize and make money off their service, especially from the ultra-power users like Robert Scoble and Leo Laporte. But there are a couple of points that he has gotten wrong there.

1. His hypothetical 30 GB of data transfer for Scoble alone does not take into account what is Twitter's major problem: tracking. Scaling for known relationships are relatively easy, because you are dealing always with a finite number and you are also dealing with spikes that can be guessed to a great extent. The case is entirely different with keyword tracking.
2. It ignores Twitter's Jabber problems, which will gradually grow to eclipse the problems it is having with API, which is throttled anyway at 70 (60, says Aditya in the comments) requests in an hour.

Realistically, I don't think Twitter can continue the Jabber service the way it is being run right now. They will need to limit tracking per user to maybe a maximum of five, so that the entire tracking mess can be brought under control. If you want to track more than that, you need to pay. And people who normally track more than four or five terms are likely to be PR or other professionals who can afford to pay for the service. This one avenue for them to get some money back into the system.

There needs to be a premium API endpoint, which does not have the 70 requests per hour limit attached to it. The current API client experience is very laggard and there is an opportunity there to scale the API much easier than scaling either Jabber or the tracking service. Once you kill the Jabber service, the premium API becomes the only available service from which you can get a user experience that is closest to the IM-based interface to Twitter.

While they seem to be the toast of the online world, it is only a matter of time before the social networking websites start losing their sheen and the crazy valuations they command these days.

The lifecycle of social networking activities on individual websites can be mapped under the following heads:

Insertion: Social networks are very much like nightclubs and if you have ever been a regular clubber, you would know that not all nightclubs are created equally.

The newer and fancier clubs are where most of the cool crowd will always head for, while the less exciting ones go away pretty much unnoticed or end up serving niches that never scales up either in terms of traction or in terms of revenue.

More often than not the case for being at a new club is to be one of the first ones to get in, granting those who manage it a feeling of exclusivity. And at least in the early days insertion is much more important than the stages that follow after it.

You can see the same behavior in the case of social networks. Both Orkut and Facebook have benefited enormously from the same exclusivity as a result of their restricted entry policies in the early days.

Replication: Once an individual joins a social network, he/she wanders about replicating connections they already have in real life. There are exceptions to this behaviour, especially in the dating, younger demographic. Quite a bit of the initial spurt of activity on social networks is just this - replication of your existing social graph.

Discovery: While almost every online social network is similar to the others, they also have their own little unique ways of doing things. For instance, you “scrap” on Orkut, “poke” and “banter” on Facebook. Everyone has their own little unique way of doing things and these days, with the introduction of various platforms, there are also truckloads of applications, alongside new users to discover on the social networking sites.

The determinants

Degree of participation: Each of the above three points have degree of participation numbers attached to it. Growth on social networks slows down primarily when the number of people being inserted (new registrations, invites) decline. Secondarily, growth also slows down when the replication is mostly done with as everyone you know is already on the network by then.

To counter this, social networks may try and induce more participation from users by rewarding more participation (like a more frequently updated social stream). This can end up being a counter-productive approach, with high risk of alienating the less-frequent users.

Degree of fulfillment: All three factors can also be measured in terms of fulfillment a user gets from them. When you join, (the insertion stage) has a high degree of fulfillment attached to it, which declines over time when it is not that cool anymore, it is not that new anymore.

Replication also has high fulfillment in the initial days, getting more people on to the same platform etc. But it comes at a price. After a while, everyone you know is on the same network.

Moreover, everyone being there also deprives you of privacy. With time, you need increasing degrees of effort to maintain your profile. It is not uncommon to see users withdrawing more and more from doing things which is reflected in the public activity streams.

Gradually, everything moves to the inbox and private messages, which is a need that is already excellently served by email.

Discovery also has a high degree of initial fulfillment with users finding their way around the new websites, exploring new applications, features and people. Eventually, users get bored of using the applications and they have already added most of the people they have wanted to discover and add, resulting in falling rates of fulfillment as time progresses.

The Eventual Failure

As demonstrated above, there is little use case for sustained high levels of usage on online social networks. Over time, it is hard to battle inactivity and increasing levels of boredom for existing users.

To offset this churn, and also to prop up their stellar growth numbers, it is imperative that these websites keep adding a steady or an increasing number of new users all the time. But that number is a finite figure, determined by the number of people who use the internet and not all of them are going to sign up with social networks.

Unlike a Digg, Gmail or a news website, the value addition accrued from sustained usage of social networks is comparitively low and the need that it addresses is fairly artificial.

Another major issue of privacy and it is an issue without having to bring something like Beacon into the equation. If you do not fine-grain access control on your social stream, it is hard to figure out who all are getting to see what all parts of your life.

And if you do fine-grain access controls on social streams, it is either too much of work or it ends up being a better deal to use specialized services for it (email for communication, Flickr/Smugmug/Picasa for photo sharing, Wordpress.com for blogging and so on).

Lastly, advertising inventory on social networks has till date been a major failure. Google tripped on the expectations it had from the Myspace.com inventory, advertising on Facebook or any other social network has not taken off much and the click through rates have been pretty poor on them. Unlike search or news, users don’t get on social networks to find ancillary information related to their activities. You don’t have to try too hard to imagine why there is not much context to one person poking another. It is, well, just a poke at the end of the day.

Eventually, even nightclubs need to reposition and redefine themselves every couple of years to stay in the game. Unfortunately, that is not an option that online social networks get to have and that is what will kill them