Social networks face a tough time in 2009, when the twin realities of disappointing ad sales and the worsening economy will dawn on the sector. Deloitte analyst Paul Lee’s insightful forecast says the networks have quickly gathered, but failed to profit from, tens of millions of users: “Average revenue per user for some of the largest new media sites are measured in just pennies per month, not pounds. This compares with a typical average revenue per user of tens of dollars for a cable subscriber, a regular newspaper reader or a movie fan. Social networks may need at least 100 users to generate the equivalent revenues of every traditional media customer they compete with.”
Lee says a liberal ethos that the monetisation angle will eventually get figured out farther down the line has been “accepted, even encouraged, through 2008″ – but “a fundamentally harsher financial outlook in 2009 and beyond, combined with an expected contraction in online advertising” will force the networks to focus more on making money from existing subscribers than continuing to add new users.
Other downbeat warnings:
– “Social networks whose future looks uncertain may suffer a debilitating outflow of senior management.”
– “The book value of some social networks may be written down; some companies may fail altogether if funding dries up.”
– The risk of audiences falling as hard-pressed users focus on things like paying utility bills instead of broadband entertainment.
As one network, Wasabi, adds a white-label offering, Lee said courting business customers in such a way may be “too little, too late”. So the social sites absolutely have to “articulate and deliver on a clear, credible route to revenues” – profiting from aggregate social-site behaviour if advertising to individuals proves hard, Lee said.