The demise of Rupert Murdoch’s News of the World in the UK had nothing directly to do with competition from social media. On the contrary, it was a profitable news “rag” appealing to the lowest common denominator of readership, and as Henry Mencken is cited as saying “No one ever went broke underestimating the intelligence of the [American] public.” And in light of the phone hacking scandal and claims that Mr. Murdoch and his lieutenants have been too close to the political elite, he is also attributed with the observation that “the relationship of a journalist to a politician should be like that of a dog to a lamp-post.”
But Henry Mencken was referring to an age in which newspaper journalism was the all-pervasive source of news in society. Social networks differ as a source of information. On the one hand they are far, far more comprehensive as a visit to Wikipedia – available in a click of the mouse – will instantly demonstrate. On the other, they are rarely capable of in-depth analysis of investigative journalism that yes, even the NOW was sometimes capable of. Instant exposure yes; detailed reporting, not so much. Yet their evolution may prove that anything is possible. So what governs their evolution? An important question for SNS like Facebook looking to IPO in 2012.
One recent reference to World SNS listed 17 sites in June 2009 which by June 2011 had reduced to 9 sites (http://techcrunch.com/2011/06/13/its-a-facebook-world-other-social-networks-just-live-in-it/) and another listed 11 by May 2011 (http://www.newsweek.com/2011/03/06/mark-zuckerberg-s-650-million-friends-and-counting.html); but Twitter was not included in either, and G+ had not yet been launched. In both cases it was a Facebook world by 2011. Why? A key to the success of SNS is what economists call the network effects. FB began by introducing links to games, and then to other sites. A visit to the New York Times website, for example, will offer a FB icon for instant referral. This generates not only traffic – traffic is the equivalent of liquidity for commodity marketplaces – but people connecting to people – FB uses a cobweb architecture for linking any-to-any; G+ uses a circles architecture for defining and controlling different communities of interest – and crucially for the business model, advertisements and advertisers. According to the Financial Times (19th July 2011) FB’s “cost-per-click” advertising rates have soared over 74% over the past year in its 4 leading markets. Bodes well for the IPO?
Yes, if it is thought to be sustainable. In the old dot.com world, what goes up can and often did come down. What creates sustainability? First, network effects. Those that created them have prospered. What comes next? The physical networks that support them. First, data centers for fast efficient local service delivery. Second, submarine cable investments for global connectivity and Wi-Fi and maybe even 4G wireless networks for local distribution. Google has been the most adventurous in this direction. What does it offer an SNS? A guaranteed quality of service and the advantages of what in the old telecoms world was called a VANS (value added network service) provider rather than a VAS (value added service) provider. That is why most ISPs today are telcos. And this is why tomorrow many telcos will be SNS offering OTT voice and video conferencing.