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Social Networks Search for a Business Model

Even though online communities and social network web sites have experienced stellar growth in recent years, In-Stat reports that their future remains somewhat uncertain.

The high tech market research firm sees both membership and monetization as key issues for social networking sites -- while this is a phenomenon that's here to stay, only sites that can overcome these issues will survive.

"In order for a social networking site to be successful, it must attain a critical mass, and competition is fierce to attract new members." says Jill Meyers, an Analyst with In-Stat. "So far, sites have focused their attention on a younger demographic, which is finite, fickle and limited in expendable income." Recent In-Stat research finds that the biggest American generation, the baby boomers, is frequently overlooked.

Site operators are still struggling to find profitable business models. In a recent survey, when asked if they had plans to purchase premium services online, the majority of respondents who do not currently purchase these services indicated they had no future plans to do so.

"While many sites are struggling to attract advertisers, others are seeking to attain profit through nominal monthly fees," says Meyers. "It seems as if the most important asset the site operators possess is constantly overlooked -- user data. Each social networking site collects a plethora of personal and demographic data on each member, and while selling these data to target marketing groups may be unappealing to site members, it may be the best route to profitability for site operators."

I believe that it would be interesting to compare Asia-Pacific consumer use of mobile services, relative to social network applications, with their peer users in North America. My guess, the U.S. survey respondents will demonstrate a continued lack of awareness of how a mobile phone can be utilized in community applications, and they reject Internet access pricing plans. Also, given current advertising revenues, most social networking sites are still in search of a viable business model.

In-Stat's study found the following:

- MySpace is the most popular social networking website with 140 million members.

- 30 percent of survey respondents pay for premium services or features on social networking sites.

- Respondents who indicated no future plans to purchase premium services on social networking websites cited expense and lack of desired services and features as the main reasons for lack of purchase.

- Less than 13 percent of survey respondents use mobile social networking services. Furthermore, the overwhelming response was that the use of mobile devices for social networking simply was not of interest to them.

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