The rise and fall of social networks

There is a broad discussion around the use of identity information at StudiVZ these days. They have changed their agreements with their users and will present personalized adverts. That has lead to an intensive discussion in their user community. Another interesting change can be found at Xing since some two weeks: At the starting page you can now directly see not only the number of new contacts of your contacts (like at LinkedIn) but the names of the new contacts.

I personally found that change a little bit to open. For sure you can look up the contact lists of your contacts as long as they aren’t hidden. But there is a difference between acting actively and this new situation where you are passive. I’m not sure whether I like that – and I doubt that other users are convinced of the value of this change.

But, more important than the question whether I will hide my contacts at Xing as a consequence of this change there is another aspect which is common for both described situations: Social networks are at a critical point. And their next steps will influence the future not only of some single social networks but of the approach in general.

There are some interesting points

  • The business models of social networks.
  • The question of information ownership.
  • The respect regarding privacy concerns.
It is obvious that most of these points aren’t solved in an appropriate way in at least most of today’s social networks. That might lead to a situation in which most of today’s social networks will disappear – an expectation I share with my colleague Tim Cole who has started this discussion some months ago.

Regarding business models: The problem lies in the fact that there are only two business models. One is to earn money from the members for premium services or, to some degree, from partners who deliver premium services. That is somewhat limited but might work. The second approach is to earn money with the member data or the amount of members. The easiest approach are non personalized adverts. No one likes them but they don’t create privacy issues and problems with the information ownership. Any other approach, e.g. personalized adverts or selling of adverts leads to these issues – and thus is critical for any social network.

The second and third of the aspects mentioned above seem to be the same at first. But there is a big difference: One is about control and accessibility of my information, e.g. my contacts and other data in the network. There are to facets:

  • Can I take my information with me?
  • If there is a business with build on that information: Can I control whether I want it to be done and, if yes, can I participate?
Both aspects are contradictory towards the business models of the social network companies. Thus you usually can’t take your information with you. I’m member in Xing and LinkedIn. And I really don’t like to maintain two networks. I’d like to have an approach where I can take my information and transfer it. Others like to have a smart move from their study to their business career moving their network as well. But you are locked in to a network – and they do the business. And you have to pay for. Add some – from the customer perspective – doubtable features and you end up with a business model which is close to failure.

By the way we started a discussion around the portability of identity information in social networks at the EIC 2007 and will follow up next year at EIC 2008. Will be interesting to observe whether there will be any moves towards more openness and standards to interchange the information someone has in these networks – his information, not theirs!

Finally, there is the need for privacy. We have strong regulations in many countries. And social networks seem to have a tendency to violate policy regulations or at least stress them. The approach “we change our business policy and our end user agreement and you have to accept or leave”, like StudiVZ has done, is inacceptable.

Given these aspects it seems like there are more open questions than answers. And many of these questions affect  the business models of social networks. Trying to expand the model beyond direct fees from the users ends up with high risk approaches which might end with less or no users any more. On the other hand the activities of social networks are against what the user wants. Thus the question is whether today’s social networks will survive or will be replaced by something with more control and consent of the user – the information owner. This is the same tendency like with VRM (vendor relationship management) and in fact, the entire user-centric identity management. I personally believe – and agree with Tim Cole – that the world of social networks will fundamentally change within the next years.


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