I've argued before that social networking should be a feature, not a destination, and that the one-size-fits-all model of Facebook and MySpace will eventually give way to a multitude of narrowly focused sites with social networking built in, such as the 220,000 niche networks hosted on the Ning platform.
It turns out that it's not just the experience that's better on the smaller, more focused sites: the economics work better there, too. Yesterday MySpace's parent company, News Corp, released quarterly financial results and although traffic was up on MySpace, they're having trouble making money. COO Peter Chernin said:
We remain incredibly optimistic about social media. But there are specific challenges 1) Tons of inventory. Lack of scarcity creates a liquidity challenge. Working on bringing big brands aboard. 2) People who are visiting social networks there for different reasons, different uses. Figuring out how to target. 3) What's the value of a "friend"? Trying to figure out new metrics to communicate with marketers.
Indeed, last I checked, display ads on MySpace were going for a rock bottom $0.13 CPM (price per thousand views). Meanwhile, although Ning isn't disclosing its revenue across its entire network, I can give you a sense of it from my own robotics site hosted there, DIYDrones. The AdSense ads we run there (mostly accelerometer and other sensor parts, as per the example above) generate an average "effective CPM" (CPM after Google's cut, which can be as much as 50%) of $3.60. Before Google's cut, that's as high as $7.00.
So that's $0.13 on a general-purpose social network like MySpace and $7.00 on Long Tail social network like DIYDrones. Even with a more generous scenario--$0.50 on MySpace and $5.00 on a focused Ning site--the difference is still a factor of ten.
Sure, the traffic today is still mostly going to Facebook and MySpace. But as they struggle to target ads based on the faint signals of consumer behavior in a generic social network, the smart money is going to the niche sites, where laser-focused content and community makes targeting easy. The Long Tail of social networks isn't just more satisfying if your community is actually about something, it's richer, too.
[UPDATE: See this excellent post by a marketing strategist who reports on the disastrous results from his Facebook advertising experiments. Bottom line: it was only a $0.30 CPM and not worth even that. Tell me again why Facebook is valued at $15 billion?]