Everywhere and Nowhere | The Economist

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> EVERYWHERE AND NOWHERE
> Mar 19th 2008
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> Social networking will become a ubiquitous feature of online life.
> That
> does not mean it is a business
>
> A LARGE but long-in-the-tooth technology company hoping to become a
> bigger force in online advertising buys a small start-up in a sector
> that everybody agrees is the next big thing. A decade ago, this was
> Microsoft buying Hotmail--the firm that established web-based e-mail
> as
> a must-have service for internet users, and promised to drive up page
> views, and thus advertising inventory, on the software giant's
> websites. This month it was AOL, a struggling web portal that is part
> of Time Warner, an old-media giant, buying Bebo[1], a small but
> up-and-coming online social network, for $850m.
>
> Both deals, in their respective decades, illustrate a great paradox of
> the internet in that the premise underlying them is precisely half
> right and half wrong. The correct half is that a next big
> thing--web-mail then, social networking now--can indeed quickly become
> something that consumers expect from their favourite web portal. The
> non sequitur is to assume that the new service will be a
> revenue-generating business in its own right.
>
> Web-mail has certainly not become a business. Admittedly, Google,
> Microsoft, Yahoo!, AOL and other providers of web-mail accounts do
> place advertisements on their web-mail offerings, but this is small
> beer. They offer e-mail--and volumes of free archival storage
> unimaginable a decade ago--because the service, including its
> associated address book, calendar, and other features, is cheap to
> deliver and keeps consumers engaged with their brands and websites,
> making users more likely to visit affiliated pages where advertising
> is
> more effective.
>
> Social networking appears to be similar in this regard. The big
> internet and media companies have bid up the implicit valuations of
> MySpace[2], Facebook[3] and others. But that does not mean there is a
> working revenue model. Sergey Brin, Google's co-founder, recently
> admitted that Google's "social networking inventory as a whole" was
> proving problematic and that the "monetisation work we were doing
> there
> didn't pan out as well as we had hoped." Google has a contractual
> agreement with News Corp to place advertisements on its network,
> MySpace, and also owns its own network, Orkut[4]. Clearly, Google is
> not making money from either.
>
> Facebook, now allied to Microsoft, has fared worse. Its grand attempt
> to redefine the advertising industry by pioneering a new approach to
> social marketing, called Beacon, failed completely. Facebook's idea
> was
> to inform a user's friends whenever he bought something at certain
> online retailers, by running a small announcement inside the friends'
> "news feeds". In theory, this was to become a new recommendation
> economy, an algorithmic form of word of mouth. In practice, users
> rebelled and privacy watchdogs cried foul. Mark Zuckerberg, Facebook's
> founder, admitted in December that "we simply did a bad job with this
> release" and apologised.
>
> So it is entirely conceivable that social networking, like web-mail,
> will never make oodles of money. That, however, in no way detracts
> from
> its enormous utility. Social networking has made explicit the
> connections between people, so that a thriving ecosystem of small
> programs can exploit this "social graph" to enable friends to interact
> via games, greetings, video clips and so on.
>
> COMING UP FOR AIR
> But should users really have to visit a specific website to do this
> sort of thing? "We will look back to 2008 and think it archaic and
> quaint that we had to go to a destination like Facebook or LinkedIn[5]
> to be social," says Charlene Li at Forrester Research, a consultancy.
> Future social networks, she thinks, "will be like air. They will be
> anywhere and everywhere we need and want them to be." No more logging
> on to Facebook just to see the "news feed" of updates from your
> friends; instead it will come straight to your e-mail inbox, RSS
> reader
> or instant messenger. No need to upload photos to Facebook to show
> them
> to friends, since those with privacy permissions in your electronic
> address book can automatically get them.
>
> The problem with today's social networks is that they are often closed
> to the outside web. The big networks have decided to be "open" toward
> independent programmers, to encourage them to write fun new software
> for them. But they are reluctant to become equally open towards their
> users, because the networks' lofty valuations depend on maximising
> their page views--so they maintain a tight grip on their users'
> information, to ensure that they keep coming back. As a result, avid
> internet users often maintain separate accounts on several social
> networks, instant-messaging services, photo-sharing and blogging
> sites,
> and usually cannot even send simple messages from one to the other.
> They must invite the same friends to each service separately. It is a
> drag.
>
> Historically, online media tend to start this way. The early services,
> such as CompuServe, Prodigy or AOL, began as "walled gardens" before
> they opened up to become websites. The early e-mail services could
> send
> messages only within their own walls (rather as Facebook's messaging
> does today). Instant-messaging, too, started closed, but is gradually
> opening up. In social networking, this evolution is just beginning.
> Parts of the industry are collaborating in a "data portability
> workgroup" to let people move their friend lists and other information
> around the web. Others are pushing OpenID, a plan to create a single,
> federated sign-on system that people can use across many sites.
>
> The opening of social networks may now accelerate thanks to that older
> next big thing, web-mail. As a technology, mail has come to seem
> rather
> old-fashioned. But Google, Yahoo!, Microsoft and other firms are now
> discovering that they may already have the ideal infrastructure for
> social networking in the form of the address books, in-boxes and
> calendars of their users. "E-mail in the wider sense is the most
> important social network," says David Ascher, who manages
> Thunderbird[6], a cutting-edge open-source e-mail application, for the
> Mozilla Foundation, which also oversees the popular Firefox web
> browser.
>
> That is because the extended in-box contains invaluable and
> dynamically
> updated information about human connections. On Facebook, a social
> graph notoriously deteriorates after the initial thrill of finding old
> friends from school wears off. By contrast, an e-mail account has
> access to the entire address book and can infer information from the
> frequency and intensity of contact as it occurs. Joe gets e-mails from
> Jack and Jane, but opens only Jane's; Joe has Jane in his calendar
> tomorrow, and is instant-messaging with her right now; Joe tagged Jack
> "work only" in his address book. Perhaps Joe's party photos should be
> visible to Jane, but not Jack.
>
> This kind of social intelligence can be applied across many services
> on
> the open web. Better yet, if there is no pressure to make a business
> out of it, it can remain intimate and discreet. Facebook has an
> economic incentive to publish ever more data about its users, says Mr
> Ascher, whereas Thunderbird, which is an open-source project, can let
> users minimise what they share. Social networking may end up being
> everywhere, and yet nowhere.
>
> -----
> [1] http://www.bebo.com
> [2] http://www.myspace.com
> [3] http://www.facebook.com
> [4] http://www.orkut.com
> [5] http://www.linkedin.com
> [6] http://www.mozilla.com/en-US/thunderbird/
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> See this article with graphics and related items at http://www.economist.com/business/displaystory.cfm?story_id=10880936