The profits of social networks need to start matching the hype
Bebos in a bit of trouble, an early sign that all in the world of social networking isn’t rosy.
In the last few weeks Bebo has announced that it is to cut some UK jobs and will freeze commissions from its Web TV production, on the basis it is moving towards increased profitability. It is said to be part of the restructuring of parent company AOL, but it is worrying when a website with over 16 million monthly users worldwide isn’t seen as profitable.
Like MySpace, in the past two years Bebo has seen its traffic numbers fall, as they lost much of their audience to the ‘younger’ networks led by Facebook, Twitter and LinkedIn. This isn’t new. We could see this shift had begun early 2008 as Facebook finally usurped the traffic levels of MySpace and Bebo particularly in the UK. But, these are still massive networks generating huge levels of users over long periods of time, why is this activity not being generated into powerful revenue?
The display advertising market, particularly in the UK, has not been growing at the rate of search spend and social networks in their nature have proven to be weak platforms for generating responses to traditional display advertising formats.
The social networking user is focused on communicating with their peers and is less likely to be affected by untargeted advertising. Bebo has tackled these issues like most content based websites by introducing groundbreaking WebTV shows like Kate Modern and Sofia’s Diary to give users more reason to stay on the site and advertisers more innovative options to push their messages. Both sites have also embraced the need for businesses to engage their audiences in conversations with engagement packages.
However it’s been the larger commercial partnerships that have kept them afloat up to now. Myspace is part of Newscorp and has had a very lucrative search traffic agreement with Google which is coming to an end in the next year, while Bebo has been propped up by AOL Time Warner. These agreements were leveraged when traffic levels were on a steady increase — that’s not the case now. With the popularity of both sites waning, it looks like these two social powerhouses are going the way of Friends Reunited — the original social networking site that fell away into obscurity not long after being bought by ITV in December 2005 for £120m.
Users can be fickle and they move in their millions when a social network is no longer the cool place to be. Facebook is still on the rise (albeit gradually), mainly due to its ability to adapt and build on the popularity of Twitter and integrate it further into its social environment. Both Facebook and Twitter have had significant funding on the basis of their continued traffic levels, but we have seen that this can fall away quickly. They have been implementing similar targeted advertising models to search, using the huge wealth of data at their disposal allowing brands to powerfully target users. It remains to be seen whether they can gain the levels of profitability to go with the hype.