What's this got do do with social networks?

Entrepreneurs the world over are trying to figure out how they are going to make money on "social networks," sites like Facebook and standards like Open Social. I take the view the Economist magazine takes, that social networks will become like air. Think of a few technologies of the past. One is ISPs. In 1995 there were many ISPs and they could even make money but as it became a commodity service people would could not scale disappeared. Web designers are as common as rain these days, but it is a marginal, life-style business, though in the late '90s there were thoughts of mega-design companies. Now Web design has been incorporated into business and personal communication and it is another kind of marketing design. There are special things as new technology like ajax and such open windows for programmers, but it has gone the way of specialized word processing, it is something almost anyone can do to some degree.

What is the outcome a social networking company needs to accomplish to be successful? Several CEOs of well-known social networking companies told me it is "the size of the network.' Given my interest in social networks, I can't help but agree. However, the part of me that is a businessperson thinks "if that makes money." After all, unless those network members represent revenue, they are just a drain on the company. In fact, as the Economist has pointed out, social networks are not like phone networks or the Internet. Maintaining a connection with a person has a cost and after a certain point larger networks are less valuable than smaller ones.

How can social networking sites make revenues? Pretty much the main way people have figure out is advertising. When would that work best? If there is specialized social network for, say travel, then it would make sense to advertise travel related stuff there. For a site like Facebook, where it is used for a variety of purposes, it is more difficult for advertisers to target interest groups. One strategy that people are trying is to trace the diffusion of addin modules, which is based on the theory that there are "influenctials" that can be discovered and marketed to. However, a recent article by Duncan Watts calls into question if that is really what is going on. My opinion is that it is not terribly useful information. Having someone take the time to install and distribute a virtual vampire application is probably and indication of how much free time someone has on his or her hands rather than any special influence the person has.