On the Monetization of Social Networks

An article on the economics of social networks published by the Economist Online, concludes that “social networking may end up being everywhere, and yet nowhere,” because it is not clear how companies will be able to monetize that pattern of behavior.

Although there is ground to support that argument, I think that the much of the difficulty in monetizing social networks lies in the framework people are using to create their revenue models.

The most comprehensive attempt to understand people’s motivation, found in Yochai Benkler’s Wealth of Networks, has found substantial evidence that “under some circumstances, adding money for an activity previously undertaken without price compensation reduces rather than increases the level of activity.” When Facebook introduced Beacon, a new service informing a user’s friends whenever he made a purchase at affiliated online retailers, they did just that. World of mouth was turned into a new “recommendation economy.” Something that belonged to the non-market sphere was brutally pushed closer to the market scene.

Money-oriented motivations are different from socially-oriented motivations. Sometimes they align, sometimes they collide. Which of the two will be the case is contextually contingent. Extracting wealth out of social networks means understanding, as Benkler points out, under what conditions all these “acts that are distinct from our desire of money and motivated by social and psychological needs”  can be instrumentalized and monetized. Making money out of social networks demands a deep and thorough understanding of the dynamics at play.

Gladys Priso

Tags: New Business Models, social networking, Social Networks