Projected revenues for two of the biggest social networks (MySpace and Facebook) have fallen according to eMarketer according to what can be described as “lackluster revenue growth.” Since their inception the question has always been posed, “How do you take a free service and turn a profit on it sufficient enough to allow for continued growth?” Social networks, until recently, have relied almost solely on ad revenue to meet their bottom line. But with the economy in dire straits ad revenue is down as marketing budgets nationwide have taken a hit. With the ability to advertise and sell products from personal profiles for free with tools like the Social Store Builder businesses are less able to justify paying for the same type of exposure to create and place ads.

Social Network Sites Are Expanding Offerings to Generate Revenue
More recently social network sites have begun expanding their revenue sources by offering the increasingly popular “virtual gifts.” These “virtual gifts” are icons or images that one user can buy and have “sent” to another user. Besides the plethora of seasonal virtual gifts ranging from reindeer to leprechauns and heartfelt gifts from teddy bears to roses, “branded virtual gifts” are becoming a hot ticket. Now companies can create gifts that bear their logo representing newly released products, recent accomplishments, and more. While “virtual gifts” have brought in their fair share of revenue they have a potential to be undercut by the alternative “free gifts” applications that have some similar gifts at no cost to the user.

The social networks have also refined their ad offerings in an attempt to keep ad revenue steady in the coming year. A newer MySpace offering allows businesses to target very specific demographics by honing on in members’ profile information. The highly targeted system is intended to achieve greater advertising confidence by prospective advertisers and a higher conversion rate. Their inclusion of video ads makes this a promising endeavor for MySpace.

Potential Offerings on the Horizon for Social Network Sites

1. Music Downloads
   Music downloads are likely to make a strong presence on the larger social networks in 2009, playing off of the successes of sites like iTunes and Napster. By embedding paid music downloads in the very area where users are discussing and posting about their music interests MySpace and Facebook have an advantage over sites that are solely based around downloading/streaming music.
2. Donations
   In the future most social networks will likely ask for donations like Wikipedia has already begun doing. The theory here is: “It doesn’t hurt to ask.” By reminding users that all the content they enjoy is available to them for free and then asking for small donations to help them continue to providing it at no cost some contribution systems have been able to bring in large sums of money. Wikipedia, for instance, reportedly has received just over $6 million in donations thus far. While the early days of MySpace and Facebook were marked by young, mostly income-less users, older users and businesses alike have been adopting these networks as a way to reach a wider audience. These new users have far deeper pockets and are more likely on average to donate money to worthwhile causes.
3. Developing In-House Applications
   An additional revenue potential for Facebook would be developing their own applications and charging users for access to them. Like many other business plans out there Facebook could charge users either a flat-rate or monthly fee for each premium application they want access to on their profile. Users could still have access to third party developed basic applications; and like the “virtual gifts” model they could expand to offering branded applications.
4. Paid Communication Methods
   One final speculation is that the social networks could start charging for communication methods (chat, email, internet calls, etc.) that would be tied into profiles and accounts- like a paid version of AIM, Gmail or Skype. The benefit to users would be fewer applications, profiles, logins, etc, for users to manage and tie-in potential with their existing social networks. The obstacle, however, would be convincing customers that they should pay for something that they can already get for free- but hey, it worked for satellite radio.

Falling projected revenues are forcing the social networks to innovate, causing more opportunities for users and businesses alike. As a user expect to see more features, tools, and options at your fingertips. As a business, expect to see more money making opportunities.

Ready to join the exciting future of social networks? Check out Volusion’s Social Store Builder!

-Kate Pierce eCommerce Specialist

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