Social networks are coming under scrutiny since Facebook’s take-the-money-and-run IPO. Michael Wolff observed that Facebook is doomed to push advertising at ever lower rates, using ever more annoying methods, to ever more reluctant users. LinkedIn severed its relationship with Twitter following the latter’s ominous threats to third-party clients, likely intended to preserve Twitter’s ability to push ads wherever there is a Twitter feed. And now the original social media giant Digg, once valued at over $160 million, sells for a paltry $500,000. One reason for its demise: aggressive pushing of paid submissions.
Looking at this mess, Derek Powazek asks: What if social networks just aren’t profitable? He sees a vicious circle: Social media startup tries to gain as many users as possible, then pushes advertising as hard as possible, which in turn alienates users who flock to the next startup. The surviving communities are small ones with – shockingly – paying members, such as Metafilter. I recommend you read the whole of Derek’s post, as well as Maciej Ceglowski’s amusing Don’t be a free user and Clive Thompson on the Problem With Online Ads. From the latter article:
I predict that in 2050, we’ll look back at the first 20 years of the web and shake our heads. The craptacular design! The hallucinogenic business models! The privacy nightmares! All because entrepreneurs convinced themselves that they couldn’t do what inventors have done for centuries: Charge people a fair price for things they want.
While I agree with Derek’s observations in general, I think Google+ is an exception. Google is in a unique position, as explained by Michael Wolff and Ken Doctor. As the ubiquitous invisible middle man of Internet advertising, Google always gets its cut while other companies struggle with profitable ad placement and reluctant users. This ensures a profitable business under all circumstances, short of a total advertising collapse.
Google has also mastered the art of placing ads where users want to see them, namely among search results. This ties directly into Google+ because Google Search and Google+ use the same account – and Google+ offers pages for businesses seeking an online presence. So Google+ data helps refine Search results, and Search finds commercial Google+ pages. Even better, Google+ accounts are (optionally) associated with geographic locations which turns Google+ into a modern Yellow Pages: users can easily find local businesses and directly interact with them, including an online payment service.
The constant lamenting about low user interaction on Google+ is therefore missing the point. Google couldn’t care less whether people are chatting about lolcats and Higgs bosons because Google doesn’t need to push advertising into the conversation. Google simply waits for users to actively conduct a search, and then presents the businesses that are its paying customers – much less annoying and much more effective than unrequested advertising. My prediction is that no matter how many more free social networks collapse, Google+ will do just fine thanks to search integration.
2012-07-19: Mike Elgan’s Is Facebook Toast? just performed a similar analysis.