The consensus seems to be that social networks have a monetization problem. On this topic, both the leading technology industry blogs and the world’s top news organizations agree. The problem is not that these sites have no revenue. I “guesstimate” that MySpace and Facebook have annual revenue run-rates of approximately $650mm and $450mm respectively – highly reputable numbers. The perceived problem relates directly to revenue per user or page view, as these are two of the most heavily trafficked sites on the Internet. As a comparison, other companies with similar usage, like Yahoo, are doing $7.2B in annual revenues. When reporting earnings from Q4 of 2007, Google also opined on the difficulty in monetizing social networking sites. Sergey Brin noted, “I don’t think we have the killer best way to monetize social networks yet.”
There is ample historical data that proves web sites like these are inherently difficult to monetize. Most other online communication products have had similar struggles. Two great examples of this: the many leading players in the Instant Messaging (IM) space (AIM, ICQ, Yahoo Messenger) and the leading free email sites (Hotmail, Yahoo Mail). These products/sites have always had some of the lowest eCPMs on the Internet. Many speculate that this is because the user is so heavily engaged in using the product (i.e. communicating) that they are unlikely to be distracted by or engaged in an advertising message. Another corollary to this point is that other Internet properties offer more direct purchasing intent based on the way they aggregate users. Example here include TheKnot for brides, TripAdvisor for travelers, and even Google, where the search query highly delineates the direct intent of the user, allowing the advertiser to find users already in the purchasing funnel. All of these properties have incredibly high eCPMs.