More on Social Networks - April 1, 2008

Which is more valuable, goodreads or facebook? If you go by valuations then facebook is the obvious answer, what's facebook worth these days, 2 trillion? 100 bajillion? Whatever it is, it's ludicrous. And you could probably buy goodreads for 30 bucks and a case of beer if you really wanted to.

If you really want to look at value though, you shouldn't sweat valuations because the people who are making the valuations don't really have any idea what audience on the Internet is worth. Said another way, page views aren't the best way to figure out if your site is worth anything.

And the other reason not to sweat valuations, especially now, is because facebook is a walled garden and if you're a fan of history, you know absolutely what happens to walled gardens on the internet. They fail in big ways. AOL started as a dailup content generation company. You called AOL with your computer and you interacted with everything that AOL had created for you to interact with. Chat rooms, games, forums, whatever. Fast forward to today, AOL is little more than a web portal. No matter how good the content AOL could generate on their own in their own walled garden, it could have never competed with the Internet in terms of bringing people the information they want.

Or look at instant messaging. It used to have the highest walls imaginable. AOL changed AIM's protocol numerous times in order to break third party clients and now I'm logged into my AIM account from my gmail inbox. For as long as AOL fought to keep AIM closed, I'm not sure they ever figured out how to monetize instant messaging.

Facebook is nothing more than the new AOL. No matter how good the content they generate, it can never compete with the internet as a whole. No matter how many zombie bite, scrabble or iLike applications they allow on their network, they're fighting a losing battle. What does facebook actually offer that's unique? The facebook feed? Easily duplicated with twitter. The ability to have your friends updates brought right to your page? Get an RSS reader. Notes? Blogger.com. Picture sharing? Who doesn't have a flicker account? Facebook at it's core is just a collection of web services and the reason it works is that unless you are serious about your online presence, it's easier to setup a facebook profile than it is to setup your own website.

The difference between those services I named and facebook is that those other services are open. I don't need a flickr account to see your photographs and I don't need a twitter account to follow your updates, etc, etc but if I want to see what you're up to at facebook, I need a facebook account.

That's why facebook has such a hard time monetizing it's content. It's got a lot of eyeballs staring at it, but it doesn't do anything well enough that people are willing to pay for it, either in real dollars or in letting facebook mine their personal data for advertising. Thus the failure of beacon. And thus the problem with the sponsored items in the feed, it's all hit or miss if I want money off Kaplan classes (I don't).

Compare that to flickr. Flickr's basic service is free and there's a hardcore group of users who pay for an upgraded account which gives them more features. It's the hardcore users that carry the service for everyone else. People are willing to pay for flickr because it does one thing extremely well.

Goodreads is a little like flickr. It's just trying to solve one problem, books. How to organize them and how to connect with people around them. From that core focus, the monetization arises naturally. All the ads on the site surround books and publishing and if I have a goodreads account, it's probably a safe bet that I'm interested in at least one of those two things. And from goodreads I can click through to amazon and buy books. I'm sure each transaction is linked to the goodreads affiliate account, so they get a kickback from amazon on whatever I buy. That's how you monetize users, by creating value for them. Not by shoving random offers at them.

I know I sound like a goodreads shill, but I'm not. I just wanted to use them as an example of what social networks are going to look like in the future. The largest social network ever created is the internet, it's just that we're still developing the tools that allow us to connect on the internet in meaningful ways. Tools that allow people to connect in these ways are going to survive. Walled garden aren't going to be able to compete and are going to die. So if you want to talk about value, bet on the services that seek to solve one problem well and connect people around an interest.

Posted by Ben Corman at 4:33 PM

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Hey Ben,

I'm going to have to agree with you on this one. I've attempted to use Facebook as an advertising forum. The very small amount of clicks I got were coupled with a high click price. Other reviews seem to say the same thing. People definitely are not on Facebook to click on ads. I doubt that the screen vomit on MySpace is that effective either.

I'm also not going to pay a buck to send someone a tiny little .gif image.

I really don't see how you can base the value of something based on "how many users you can reach?" if the users don't give a crap.

Posted by: Joe O'Day at April 4, 2008 07:16 PM

The question that facebook really should be asking is not "how many people can we reach" but "how much do our users care"

I think the gifts are a creative idea. Not really my cup of tea, I'm not going to send one, but I see them on a lot of profiles which means that someone is sending them. But there's no way that enough gifts are being sent to justify facebook's valuation.

Thanks for the comments, Joe.

Posted by: Ben Corman at April 5, 2008 09:39 AM

I think you're only half right.

Yes, for the masses on the Internet, the walls will surely crumble soon, and we'll all be better for it. A user's first interaction with an Internet technology can never remain closed off. The original concept is eventually duplicated, improved on, and disseminated everywhere. Then the open standards evangelists come along and explode all those carefully crafted business plans built around walled gardens.

But after things are nice and open, something else happens. Smaller walled gardens appear, persist, and thrive. Keep in mind, a lot of Facebook's initial appeal was the fact that it was rather exclusive (colleges only.) There are other social networking sites out there that thrive in relative obscurity because they give users a feeling of being special or better. Often they're invite-only.

Part of me wonders if Facebook would have been better off (in terms of creating real value) if they hadn't tried to be a walled garden that appealed to everyone, to try and compete with Myspace.

You can be a walled garden and survive, but you have to give up the dream of appealing to everyone, of being the biggest. Facebook's strategic blunder has been that they're trying to have their cake and eat it too.

Posted by: Sean at April 7, 2008 09:15 PM