The Instantaneous Collapse Of Social Network Values

The valuations of large social networks such as MySpace (NWS), Facebook, and Twitter is that a visitor has the same value as a visitor to Yahoo! (YHOO), AOL, or Ask.com (IACI). Facebook is worth $10 billion because its number of members is close to the number of people who come to Yahoo! to search the internet of check the prices of stocks that they own.

The sudden collapse in the growth of MySpace which caused the firing of 30% of its staff and the slowing growth of Twitter have undermined social network values. Part of the appeal of these companies has been their remarkable doubling and tripling in the sizes of their audiences, often in less than a year.

A visitor to MySpace was never as valuable as a visitor to Yahoo! (YHOO). Web 1.0 sites have a number of advantages over Web 2.0 sites and the first among them is that the were built to accommodate the needs of marketers to target users based on their behavior. A visitor to the football section of AOL Sports is more likely to be a man aged 18 to 54 who drinks beer while a visitor to the women’s section may be more interested in cake recipes.

Collecting information on MySpace visitors is difficult. They come to the site to build profiles of themselves and share them with other MySpace members. They often consider it a violation of their privacy for the details of their profiles to be used by advertisers.  Social network members are as effective as setting the rules of their networks as the companies that own them allow them. A member who is unhappy with a rule can simply leave, or worse, mount a protest against the network’s owner.

Social networks are mostly loosely organized around member relationships and not around discernible interests in subjects or behavior. That makes them almost useless to advertisers. Even if Facebook eventually has 500 million users, they will never have much value to marketers.

Douglas A. McIntyre