[OLR] Exercise 9.1 Is social networking a business model ?

Join the site called linkedin.com and setup your "business" profile. While many businesses use social networking sites or buy islands in virtual worlds, some argue that their use is not a model for doing business.

What are the arguments for and against social networking being classified as a business model?

I had a quick play with linkedlin.com but I didn’t bother to set up a business profile. As a site Linkedlin caters, in the words of its founder, for 3 types of user:

$2000 a year users

$200 a year users

$60 per year users.

Linkedin’s owner explains here: In a nutshell a $60 a year user is bought primarily by people who want to be found, like professional service providers, job seekers and networkers. This ain’t me at the moment.

This is starting to feel a bit like how many wikipedia articles can you quote from. I won't quote from Wikipedia. Rather I'll quote from somewhere else that I like the look of. For the sake of clarity a business model is:

The plan a company uses to generate revenue. Companies that distribute open source software can't depend on control of the source code for their business model, so they have to thrive on service and other sources of revenue.

So in other words a business model basically sets out how an enterprise / organisation is going to make money or generate revenue so that it can continue to provide its services to the community that it operates within.

Given this, it’s somewhat debatable if a site like, for example, Facebook, really does have a business model. Facebook claims to be “free cash flow positive" which means that:

(It) might be making more than enough money to cover its taxes, capital expenditure and the cost of around 700 staff - but that the money put into the company by its backers (such as the $300m recently raised from Russian group Digital Sky Technologies) doesn't count. ... (Consider that) at the height of its powers a couple of years ago, rival MySpace was boasting that it was making almost $1m a day simply from selling adverts on its homepage. Since then, it has struggled to keep up momentum and found itself needing to slash jobs and refocus its business. .... (This segways into the belief) that Facebook ... making any money at all might come as a surprise to some, given that many are skeptical that social networking sites have real money-making potential (and for good reason, given the history of the dotcom bubbles and here-today, gone-tomorrow social websites). Accessed online at The Guardian Technology Blog.

Pros

Peer networking opportunity leading to $ contracts

A way of connecting with targeted people interested in a given profit

Connects consumers / providers in a social manner

Recruiting tool

A chance to market yourself

Accessible by all people for free

Cons

Might be too dependent on advertising to work

Questions about financial viability?

You might release confidential or unintentional information

Could be used by social profilers for ID theft or similar

Could lead to a lot of irrelevant interaction

Negative employer impressions (social tools = social times not work times)