Jimmy Wales on a Business Model for Social Networking

Question: Will social networking ever find a working business plan?

Jimmy Wales:  That’s a good question.  I mean, I guess, you know, in large part we’re talking about Facebook when we’re talking about looking for the magic bullet sort of business plan.  On the other hand, I don’t know if Facebook is profitable, I don’t know if they announced that or not, but I know they’re bringing in quite a large amount of money, and they spend it all on trying to make the site better.  So I’m not so sure that they need a magic bullet in order to survive.  Whether they can become sort of huge like Google.  I don’t know.  One of the interesting things about social networking is that it is very different from search in that there’re obvious and very explicit network externalities that you need to be on a certain social network, because all your friends are there.  And to move from that to another social network requires either abandoning your friends, or convincing them to come with you.  It’s non-trivial.  As opposed to if I find a better search engine, I just switch my browser’s default homepage and there I go, I’m off to the races on the new search engine.  SO I think that’s incredibly valuable from a business perspective.  From a consumer perspective, it’s something I would be concerned about.  That we all got locked into Microsoft for a long time, and lots of people still are, because of those same kinds of network externalities.  I needed a Windows computer, because all my friends had a Windows computer.  And that’s a problem.  That’s diminished over time, now.  I have also changed friends, so now I need an Apple computer, because all my friends have an Apple computer.  But the-- I think in the end, you know, we can look at something like MySpace, where there’re just-- I don’t know, in my opinion, they’re just milking it for money right now.  I mean, they monetize it like crazy!  There’s tons of ads all over it.  The whole site’s quite annoying.  Maybe I’m just too old to appreciate MySpace.  I don’t know, but I think there’re some interesting questions.  As far as some interesting and amazing new business models for Facebook, I don’t really see it, but what I do see is they’ve got all this valuable demographic data.  One of the things that we know is valuable for both advertisers and consumers is relevancy.  Certainly, right now Facebook does not particularly show me particularly relevant ads when they do show me ads, so I can’t think they’re performing very well.  But they’re getting better at that.  I mean, they’re getting a lot better of sort of allowing people to figure out who it is that they want to talk to, and who is it that’s receptive to their message, and then showing those ads.  And if they can do that, I think they’ll be very successful.

Recorded on: 04/30/2008

Will social networking sites ever find the magic bullet?

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