What's The Business Model for Niche Social Nets?

When I wrote last week's column about DIY social networks and whether social net data should become portable, I had no idea I'd strike such a chord. The column garnered more than 20 comments, many of them espousing niche social nets as the next big thing. I also had no idea the column would be so timely. The day after it ran, MySpace announced a data portability deal with a number of big partners, including Twitter and eBay, and the day after that, Facebook followed, launching Facebook Connect.

We might look back on this column later on and laugh at its naiveté, but I think this is the start of something big. I admit it -- I've been so inundated with requests to join social nets since this column launched that I'm suffering profile fatigue. Knock down a key barrier to whoring myself all over the social networking world, and I'll go right ahead.

I'd like to continue the discussion about niche social nets today by getting to something I completely ignored in the last column: the business model. As Meredith Speier from RMG Connect commented last week: "If everyone builds their own social network and we've got millions of little hundred-person conversations out there, how does a marketer reach out to them?" Good question.

I did query Ning about its business model last week. It relies on, you guessed it: advertising. (This belief in advertising as a revenue stream has gotten so out of control that sometimes I think plumbers will switch to it.) Anyway, one of the main things Ning does to earn money is to run GoogleAds. Another is to have social nets pay Ning for the right to run their own ads, keeping all the revenue, or avoid ads altogether. When a major brand like Saturn uses Ning to run a social network, Ning doesn't make a penny. The platform is free.

From Ning's vantage this may well work fine, since the company aggregates revenue from so many networks. But you have to wonder how and when advertisers are going to be able to find these ever more fragmented social nets, and whether the social nets that go into this as a business can make enough money to survive. If the success -- or lack thereof -- of most blogs is any indication, there's not a lot of there there.

I can hear some of you whispering "the answer is ad networks" in my ear. But I'm not convinced. If we've learned anything about advertising in social networks, it's that, by and large, they aren't great places for commoditized ad inventory. A study released by Prospectiv last week didn't exactly have me falling out of my chair with shock, when it found that social networkers don't like untargeted ads. Customized networks call for customized advertising.

I'll be writing about one example where this appears to be working next week, but I'd love for the SMI community to weigh in on Meredith's query. How would a marketer reach out to "millions of little hundred-person conversations"? I may be the Social Media Insider, but I don't have the answer.

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