Handicapping Social Networking Business Models

IT SEEMS THAT nearly every conversation I have that touches on social networking inevitably includes the question “But… are there any viable business models?”

Yikes. Whenever this occurs, I feel like I am an actor in that scene that occurs in nearly every horror flick, where the camera is centered on the face of the protagonist and then the cinematographer drastically shifts the field of focus so it looks like the background is moving away at a hundred miles an hour. This is meant to instill a stomach-churning dread, and suggests that everything that looked safe and certain a moment ago is in fact now being upended, and a monster or homicidal maniac is about to enter the scene and start ripping heads off.

Yeah. Just like that.

I have tried answering the “But…” question with the generic observation that social networking is a natural phenomenon. We are all doing it already as a natural part of human interaction. So augmentation of those activities by applications follows the pattern that we have laid down already with nearly every sort of information technology: automation of various business processes or personal activities. This includes nearly everything going on in the enterprise, from ERP, SCM and CRM, and right down to the individual balancing a checkbook with Quicken in the home office.

But this proof by induction doesn’t seem to work, and so I am generally forced to walk through a half-dozen examples of social networking ventures, and to detail what their business models are, in order to elicit the head nod that I expected long, long before.

And so I have decided — in classic consultant fashion — that I have to develop a model for social networking business handicapping, so that people will come to grasp the basic principle: Everywhere that there are people networking — exchanging information through social groups — there are likely to be one or more viable business models for social networking technologies to help (and charge for).

The important questions turn out to be who is paying for the social exchange to occur, and who is invited to the party where the exchange takes place. Not the “But…” that I so often hear.

Who Pays and Who is Invited?

Consultants can only think in terms of 2X2 matrices, and the presentation here will not deviate from that pattern. At one end of the “Who Pays?” dimension, we have the individual, and at the other, the enterprise. Regarding the question of “Who is Invited?” the split turns out to be public versus private access. When we zoom in on the four quadrants of the model, we can quickly list existing and soon-to-come-into-existence social networking solutions.

Stowe Boyd’s Who Pays? Who is Invited? Matrix

Sector 1, the upper right hand quadrant, is the area where I have seen the most willing acceptance of the value proposition for social networking applications. This is when there is an enterprise “buy” — an enterprise investment in the application of social networking analysis (SNA) — with a closed community, or communities, or use. This includes the application of social networking to strategic enterprise functions like sales and business development, where most are ready to agree on the leverage offered by knowing the right people or having the right introduction to help grease a deal. And most people already agree that accelerating of deal flow, by whatever metric — length of sales cycle, size of sale, number of deals opened, etc. — will have a big influence on strategic goals of the company.

Many other enterprise functions have similar characteristics, such as professional services support for known clients, where marshalling knowledge and social capital within the enterprise to help satisfy the demands of clients has great value. The core scenario in this sector is what I call “Siebel goes Social.” Imagine the enterprise sales force automation application extended to support “relationship management” based on analysis of social relationships. This is the business model of companies like Visible Path and Spoke Software, to name only two of the market sector’s leading lights.

Sector 2 involves the enterprise rolling out SNAs, but reaching out to public, open communities: for example, supporting an open dialogue between the company, the market and market influencers. In the future, we can expect corporate sponsorship of affinity groups. Imagine Sony sponsoring a social networking community around the topic of digital photography, where the affinity group members have their membership underwritten in exchange for Sony gaining highly focused market research and analysis, and possibly the opportunity to point prospective clients to objective references regarding Sony products.

Another great scenario, one which I haven’t yet encountered in the world but which represents an enormous opportunity, is socializing the supply chain. GM, as just one great example, has more than 8 million people tied up in its supply chain. But that supply chain has not been looked at as a social network. In the near future, companies like GM will be investing in specialized applications that exploit social networking analysis and relationship management across the supply chain to get an additional productivity increase, over and above what conventional supply chain management systems have yielded. It’s another area where a few percentage points of boost can represent millions in savings or revenue.

Sector 3 is the lower left hand corner of the matrix and complements the cell above it, Sector 2, in many ways. Here, the individual is “buying” the SNA — either paying for the service through some fee, or by supporting the subsidy model incorporated in the service. For example, social networking-based dating services, charging fees for enhanced services, fall into this sector. But many others are here as well, such as finding entertainment, room/roommate searches, job/employee hunting, buying/selling stuff in classified ads and so on. Perhaps the hottest idea to add some differentiation in a crowded, and what is rapidly becoming a ho-hum business model, is “iTunes goes Social,” where the online music service offers a much improved user experience based on social networks: better search; better advice, recommendations and commentary, and better shopping (= more purchases).

Sector 4, closed communities where the individual pays, is another area where the business models are more obvious — at least once they are pointed out. Here we will find identity groups — like religious, ethnic and other exclusive/exclusionary organizations — where the members either directly or indirectly subsidize the organizations’ social networking investment. This leverages what such membership groups are very serious about: “norms of reciprocity, or the tendency of those in such affiliatory groups to go along with the requests of other members and to expect the same in return.

Just as powerful are the links that exist in various identity groups, such as political organizations (think of the Dean campaign) or fringe cultural groups. Perhaps the best example of an existing social networking-influenced business in this last area is Suicide Girls, which is a pay-for-involvement community seemingly populated with hundreds of counterculture young women, with piercings and tattoos to match their edgy orientation, and who publish their life struggles in integrated blogs, including revealing photos. While somewhat risqué, these are by no means hard core and are often quite artistic, and the level of involvement of the paying guests (both male and female) is both touching and real; which should come as no more of a surprise than the phenomenon of teen idol magazines or the growth of reality TV. Janet Jackson’s recent “wardrobe malfunction” notwithstanding, we should expect more of these sex-tinged, pay-for-involvement closed communities in the immediate future, not less.

The Matrix: Revolution

There is a reality below the matrix, which represents a hidden dimension. (Take the red pill, Neo.) No, it’s not a secret conspiracy of a global, AI-driven computing system to control us.

There is a coming split in social networking technology, a break between very specific applications that do one thing very well and social networking infrastructure technologies that will be licensed and applied to a wide variety of application areas. This latter category has not really emerged at all, to date. What we have is a broad spectrum of highly specific implementations, oriented toward dating, deal flow, job search, social group formation, search and other areas, with little or no attention or design directed toward opening up the technology to others. Perhaps these should only be considered prototypes of things to come.

In the very near term, I anticipate a wave of companies — ones that have launched specific product offerings already, as well as new market entrants — will announce the availability of highly scalable and reusable social networking platform technologies, with the goal of licensing these platforms to other companies, which will then develop social networking applications on top of them. This will open the door to a collection of interesting market opportunities and challenges, such as cross-application social networking sharing and interoperability.

After all, how many social networks do you want to register with and create profiles for? Wouldn’t it be great to create a single online identity, register your contacts once and only once, and then be able to exploit those social connections in many ways, through the application of various social networking solutions?

Perhaps this represents the winningest business model for one or more (a very small number, I hope) of the largest of the existing social networking solutions. Or perhaps this represents a way for the public instant messaging services — AOL, MSN and Yahoo — to leverage their existing networks in a new context.

But please, can we work out the interoperability issues this time, instead of perpetuating the Mexican standoff that now exists in the public instant messaging market?