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Guest Post: The Business Behind Social Networks

Joel Selzer (LinkedIn profile), my Co-Founder at Ozmosis, has spent the past three years immersed in Social Media - in particular the business and functional side of Social Networks.  As Facebook, Linked-in, and most recently Twitter break new ground with ways to turn their members into dollars, we are all trying to learn more about their strategies.  In this Guest Blog, Joel helps to shed light on what the big players are up to. 

For months, there has been talk that Twitter would finally unveil its business model with a focus on serving corporate customers, whether to help promote their businesses or to provide a customer service solution. Yesterday, news broke that Microsoft (MSFT), via its Federated Media ad network is the first to sponsor an Ad on Twitter.  ExecTweet, a service that collects and highlights Tweets from various executives, will be prominently displayed on Twitter pages.

Twitter will get an undisclosed payment for promoting ExecTweet and Federated Media’s John Battelle hints at a revenue share arrangement. Federated also said it plans on launching similar programs on Twitter with other clients.  Excitement over Twitter continued to build as Salesforce announced plans to integrate Twitter within its Service Cloud, a tool it released back in January.  While countless organizations, such as our own team at Ozmosis, use Twitter daily to share insights and monitor industry news, companies like Comcast and Dell have customer service agents on Twitter to proactively find complaints and address them.  Now Salesforce users can search, monitor, and join conversations specifically on Twitter creating a far more comprehensive customer service solution. 

As we discuss in the podcast, more mature social networks will leverage the stickiness of their networks to mine a treasure trove of data and deliver a series of application and services to their users, with the potential to ultimately displace the traditional desktop environment and become a web based operating system. Twitter's integration with Saleforce is a great example, and we're also seeing this in part with the explosive growth on facebook and LinkedIn.  For a little context, facebook now claims on its statistics page:

• More than 175 million users
• 5 million new members a week join worldwide
• More than 18 million users update their statuses at least once daily
• More than 2 million events are created each month
• Users spend 3 billion minutes each day on the site 

With such an unprecedented level of growth and stickiness, facebook has the potential to become a defacto web operating system and earn back its once lofty $15 billion valuation.  However, facebook has stumbled in the past, most notably with the launch of Beacon amid privacy concerns, and just last week facebook's most recent makeover was met with fierce resistance by members. 

In contrast, LinkedIn's focus on professional networking and recruiting fosters a business model that is easier to understand for some, especially with a country in recession and millions of Americans searching for jobs online.  According to the January data from comScore, LinkedIn’s U.S. unique visitors shot up 22 percent to 7.7 million, up from 6.3 million in December.  Even more impressive, TechCrunch reported total minutes spent on the site doubled in January to 96.8 million, from 47.6 million in December. 

All this leads Reid Hoffman, LinkedIn's CEO to say that the company has been profitable for the past two years and can go public at anytime.  While the public markets have all but shut the door to tech IPOs, LinkedIn has proved that a social network can become a dynamic business if it delivers value by solving a specific need.  With unemployment at 8.1%, LinkedIn has become an indespensible tool for job seekers. 

For more thoughts on the real business behind social networks you can listen to the full podcast here.

Joel Selzer Co-Founder, Ozmosis

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