What might be happening in the media world. Here is a col. by a well known Canadian writting for the Globe and Mail Canada's priemier paper.
Social networks are hot, but where's all the cash?


If septuagenarian billionaire Rupert Murdoch wanted to stir things up in the media industry, he couldn't have picked a better way to do it than by paying more than half-a-billion dollars for a website that most media executives had probably never heard of.

The MySpace.com deal sent shock waves through the traditional media world, which is busy trying to grapple with the fragmentation caused by the rise of blogs and Web-based content, and also through the ranks of the on-line giants such as Yahoo and Microsoft.

Since the deal was announced last summer, the various players have been scrambling to find their own way into the "social networking" space, whether by buying on-line communities -- such as Vancouver-based Flickr.com and del.icio.us, both of which were bought by Yahoo -- or by partnering with existing players. Last year, media and entertainment giant Viacom bought NeoPets.com, an on-line community aimed at preteens, a market many advertisers see as a key growth area. And there were reports earlier this year that Facebook.com, a social networking site aimed at university students, was pitching itself to potential buyers at a valuation of $2-billion (U.S.).

Some of those who were around in the late nineties may feel as though they've seen this movie before, back when the hot "social networks" were Web page communities known as GeoCities, Tripod, Homestead and theglobe.com. For those who are keeping track at home, Yahoo bought GeoCities in 1999 for $3.5-billion, and Lycos, which bought Tripod, was acquired by Mexican media giant Terra for $12.5-billion.

The latest move in the social networking space came last week from AOL, the former Time Warner basket case, which announced a MySpace-style social network called AIM Pages. Designed as an extension of AOL's instant messenger product, known as AIM, the new service includes the ability to create blogs. Like Yahoo and Microsoft, AOL is trying hard to find ways of leveraging its massive subscriber base (49 million, in AOL's case).

One of the sticky issues that both AOL and Rupert Murdoch's News Corp. will have to confront, however, is how to justify the money they are spending on social networks. In the end, all those supposedly loyal users have to get converted into money, or "monetized" as financial types like to say.

It's true that based on certain estimates, MySpace is the second most-visited website in the world, with almost 30 billion page views in March -- almost twice as many as the Time Warner network (including AOL) and almost three times as many as eBay. And MySpace has about 70 million users. But it's not clear how much money it is actually making. Certainly not as much as eBay.

Even in terms of revenue, MySpace is well behind other sites that are about the same size. Its page-view number was just a shade less than Yahoo's 32 billion (for March), and yet the site's estimated revenue of $200-million for this year pales in comparison with Yahoo's almost $6-billion.

The bottom line is that Yahoo, Microsoft and AOL have been able to gain substantial amounts of ad revenue from their users, but so far MySpace has not. And that is a hurdle faced by many social networking sites. How can you monetize those users without pushing them away or ruining your brand?

According to recent estimates gathered by The New York Times, MySpace has an advertising rate (known as the CPM or cost per thousand) of about 10 cents, which means advertisers are only willing to pay 10 cents for every 1,000 page views. Some Web networks charge as much as $2 per 1,000, and established media sites can charge as much as $10.

Web advertising experts say there are two reasons why MySpace may not be getting as much for its ads: One is that the number of page views it generates seems abnormally large, and advertisers may be suspicious of how valuable each one is; and the second reason is that MySpace is seen as a hangout for teens, who are a notoriously fickle market.

According to a recent article in the Financial Times, MySpace is talking with both Google and Microsoft about a partnership that would involve search-based advertising on MySpace. A similar deal was signed last year between Google and AOL, in a deal that was worth about $1-billion to Time Warner.

At the same time, however, anyone who is considering either investing in or advertising on a site like MySpace or Facebook has to be thinking not just about the fate of GeoCities and Tripod, but also about a service such as Friendster, which was arguably as big a deal three years ago as MySpace is now. At its peak, Friendster had 20 million users, but now it is a mere fraction of its former size.

What happened? Some analysts believe Friendster didn't have enough features to retain users. It also suffered from performance issues as it tried to cope with phenomenal growth. But in the end, it may simply have been a victim of the shifting enthusiasms of its young audience, who grew up and moved on. In many ways, social networking sites are like hot nightclubs -- they become popular and then flame out as the hip crowd moves on, and they are very difficult to manufacture.

Oh yes, and one more thing: For what it's worth, Friendster never figured out how to make money either.

Mathew Ingram writes analysis and commentary for globeandmail.com

mingram@globeandmail.com