The wheels have been coming off the Web 2.0 bandwagon for a few months now. News that the “Long Tail” theory – an article of faith for True Believers – doesn’t fit the real world was broken here in November. And now, on less philosophical ground, Deloitte has come to the stunning conclusion that providing unlimited online storage for everyone, forever, isn’t necessarily the best idea for a business anyone ever had.
“The book value of some social networks may be written down and some companies may fail altogether if funding dries up,” said Paul Lee, Deloitte director of research for technology and telecommunications, the Telegraph reports.
En Anglais, that means too much was paid for the social networks that have been acquired (see AOL’s insane $850m purchase of Bebo, and CBS’ $280m Last.fm punt), and the ones that haven’t will struggle to get more cash from witless venture capitalists.
“Average revenue per user for some of the largest new media sites is measured in just pennies per month, not pounds,” Lee said. “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.” Microsoft’s investment in Facebook in October 2007 valued its then-50 million users at $300 each.
On a social network, you’re the product rather than the customer. In fact that’s completely true of all ad-supported websites including El Reg, and true to varying degrees for all media. But as it transpires, the difference is that on Facebook you and your friends just aren’t worth very much at all.
The social networking boom (in users, not revenues, you understand) was fired by free software and cheap storage – it’s just not cheap enough. We witnessed the early effects of that fact with the closure of also-ran video site Stage6 earlier this year.
“Many of the most popular social networks, such as Facebook and Twitter, do not yet generate large profits,” the Telegraph informs us.
That’s technically accurate and very truthy, but here’s a true version: Many of the popular social networks, such as Facebook and Twitter, do not generate any profits, and perhaps never will. In fact, Twitter not only doesn’t generate large profits, it doesn’t generate any revenues. None at all.
Facebook meanwhile has revenues, thanks to ad deals cut as its buzz peaked in 2007. In net it is losing hundreds of millions of dollars to build the world’s largest database of personal trivia. Its most likely fate is as the subject of a small acquisition in the next two years that ought to prompt blushes at Redmond over the $240m Microsoft paid for a mere 1.6 per cent of preferred Facebook stock. The likely buyer will be the owner of a web search business (Google, Microsoft, Yahoo!), who will use Facebook as a loss leader to send queries through its contextual text ads system. To see this in action revisit Google’s $1.6bn acquisition of YouTube.