We can’t deny that social networking took a huge place in internet user’s habits. In the paper presented by Morten Falch (alli) and at the CMI International Conference (Center for Communication, Media and Information Technologies) in 2009, the three most popular social networks are under the limelights.  Business models of Facebook, Youtube and Twitter are thus described through the characteristics of each platform which have already millions of users and billion estimated valuations.

How Social networks generate profits in order to cover the costs of maintaining and develop the network?

 

Social networks didn’t start with commercial ambitions. They were built to create of community of users without any fees for the registration.

The three platforms have different profiles and purposes. The business model framework includes service design, organization design, technology design, and financial design.

With a 300 million user community in 2009, Facebook created in 2004 by Marc Zuckerberg was one of the fastest growths in social networks development. Available for all regular PC and mobile users, its services provides an online community that allows people to connect with friends create a profile and upload photos. 

Facebook Platform is a standard-based web service with methods for accessing and contributing to Facebook data which enables the development of third-party social-networking applications.

In the Facebook value chain, the actors involved in are: application and games developers, access providers, handsets vendor, operators and users.

Advertising is the key point in the Facebook strategy but at the beginning, the numbers of users was more important than the interaction between users and a brand. The money generated from Facebook advertising services was not enough. The situation changed in 2009 when the Facebook management expected a 70% growth of revenue (280-300 millions to 500 million) from : brands ads, Facebook’s ad deal with Microsoft, Facebook’s ad deal with Microsoft and self-service ads (social gaming companies and performances advertisers.

In the case of YouTube, created in 2005 by three formers PayPal employees: Steve Chen, Chad Hurley and Jawed Karim, it’s basically and Internet based public video-sharing service where the end-users upload and share videoclips. YouTube does not have any creative content and is built on user generated content with the end-users acting as producers and consumers of the content. 

YouTube video playback technology is based on Adobe Flash Player and uses the Sorenson Spark H.263 video codec with pixel dimensions of 320 by 240. This technology allows YouTube to display videos with quality comparable to more established video playback technologies.

As the Facebook financial model, Youtube’s is based on advertisements. Five different ways of advertisements are use on Youtube: In-video graphical and text advertisements Post-roll advertising, Pre-roll advertising, Regular banners, Sponsored advertising (Sponsored video Spot)

The third mainstream social network but less widespread than the ones mentioned earlier in the paper, was founded in 2006. Users on Twitter can read and post messages (tweets), and they can send messages directly to another user. Posted messages are sent to all ‘followers’, those who have chosen to follow a certain user.

 The main difference between followers and friends on Facebook, you don’t need to follow your followers and vice versa.

In the organizational services, the actors involved in the Twitter value chain are: application developers, access providers, and users.

Twitter provides a common platform for sending and receiving messages by the use of a wide range of delivery channel (web interface, user’s applications, facebook, etc…). Users have access via a web homepage but twitter deliberately designed as a mobile service.

Twitter capacity of generating money is an on-going discussion. There is small revenue generated by users who send and receive tweets on SMS, but it covers a limited part of the costs. The profits made with applications provided by developers are not even shared with Twitter. Revenues from advertisements or a fee imposed on businesses using Twitter as a marketing channel are obvious possibilities.

In the present paper, examples of 2.0 services were described. The extraordinary developpement of these social networks shows the power of network effects. The three cases analyzed unveil a question dealing with the capacity of generating money which is the common issue of the social networks. Actually, Advertisement is the major revenue source because it’s impossible to get people to pay for access to these platforms otherwise users will migrate on others platforms. Another revenue source until now is the investment of the capitalists who trust in the networks projects. The potential revenue on a long-term period will probably make these investments profitable but are not guaranteed.