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Year in review: Social networks grapple with money question

Sites like MySpace, Digg, and Facebook proved their might in this fall's election, but when that party ended, it was back to figuring out how to make a buck or two.

7 min read
Social networking

Social networks grapple
with the money question

By Caroline McCarthy
Staff Writer, CNET News
Published: December 16, 2008, 11:30 AM PST

When it came to the news headlines, it was a terrific year for social networks. Mostly.

True, the security holes and safety concerns are far from gone, and likely won't go anywhere any time soon. Nor will the existing copyright and trademark issues, like the whole Scrabulous debacle. But the likes of Facebook, MySpace, Twitter, and Digg were riding high on one big victory: Barack Obama, whose presidential campaign rocketed to victory on many of the social-media tools that were still getting denounced as fads just a year ago.

Facebook and MySpace, the world's two biggest social networks, launched elaborate voter outreach initiatives. Digg's traffic soared as political news reached a fever pitch. An official Twitter account for Obama became the microblogging site's most popular. Widget development companies, which rose to fame in 2007 when Facebook kickstarted the social platform craze, were getting contracts left and right to create election apps.

Obama at MySpace event

Credit: Caroline McCarthy/CNET News

President-elect Barack Obama, who amassed
a strong online following during the campaign,
was enthusiastically received in February as
he addressed a MySpace-MTV event.

It all provided some uplifting news for social-media sites as the economy began to crumble in September. But now that Obama is poised to take office, the election party's over and it's back to reality. As buzzworthy as it remains, the social-media industry still hasn't proven itself in the business viability department. This was a concern in Silicon Valley even before the financial downturn began to grow truly alarming: Twitter has not yet produced a business model. Facebook and Digg are not yet profitable. MySpace appears to be doing better, likely due to the fact that it's been owned by News Corp. since 2005 and has big-media advertising connections at its disposal.

Perhaps because of the financial climate, or perhaps because the era of Web 2.0 was drawing to a close anyway, there were no truly splashy new entrants into social media--no nascent company created the kind of sensation that a Facebook, or even a Twitter or Digg, had in previous years. Location-based mobile social networks didn't create the sensation that many had expected. And indeed, the recession's effects first hit the second and third tiers of social media, with companies like Imeem and Buzznet announcing layoffs. Pownce, a would-be Twitter rival, closed up shop entirely and sold its assets to blog software company Six Apart (which had itself gone through a round of layoffs). The beleaguered Yahoo shuttered its social-networking experiment, Mash.

On the bright side, there were some acquisitions: AOL bought Socialthing and Goowy--and in a whopping $850 million deal, acquired Bebo, a social network that counts most of its popularity in the U.K. and Ireland. Also, Twitter bought Summize, Comcast bought Plaxo, and social-app companies like the Social Gaming Network started amassing portfolios of widgets purchased from independent developers.

Facebook, meanwhile, tied up a few of 2007's loose threads. Putting the Beacon advertising snafu behind it and filling its executive ranks with former Googlers and Washington insiders, the company announced Facebook Connect in May and unveiled Engagement Ads in August. ConnectU, the onetime start-up that sued Facebook for code theft, received some sort of settlement--and two of its founders, Cameron and Tyler Winklevoss, placed sixth in an Olympic rowing event shortly thereafter.

Late in the year, a few of the data-portability and "universal log-in" initiatives that had been announced earlier in the year actually launched: Facebook Connect went live, as did Google Friend Connect and Viacom's Flux, and MySpace began its "Data Availability" project by helping to develop an extension that manages the OpenID universal log-in standard for the Flock browser.

But as with so much else, the year 2008 in social networking ends on a fairly low note. The recession recently stalled Facebook's plan to allow some of its employees to cash out stock options. MySpace CEO Chris DeWolfe has expressed concern about his company's ability to continue growing its ad-revenue footprint. Twitter and Digg, along with other players in the market like RockYou, Meebo, Yelp, LinkedIn, and Ning, have filled their coffers with venture funding and are hoping to keep growing while they wait out the storm.

As Facebook and MySpace keep scrambling for the top spot in social media, it's clear that this is no fad. The profitability issue, however, will be a sobering one in '09.

2008 Highlights

'Scrabulous' debate may rewrite the rules of the game

Wildly popular Facebook application is in hot water for similarity to classic board game. But could it be a marketing treasure trove for Scrabble's trademark holders?

January 16, 2008

N.Y. lawmakers announce social-networking safety legislation

Industry titans Facebook and MySpace are on board with Attorney General Andrew Cuomo's newly proposed bill to keep sex offenders off social-media sites.

January 29, 2008

The MySpace generation's got a crush on Obama

The Illinois senator took questions from MySpace users and an MTV studio audience that seemed to like him quite a bit.

February 2, 2008

Kevin Rose opens up and Diggs in

q&a In part 1 of a two-part interview, Digg's founder says a "smarter" social-news experience is coming--and that Yahoo Buzz doesn't sting.

February 28, 2008

Zuckerberg talks about Facebook's future

After an arguably disastrous SXSWi interview, Facebook's founder sits down with CNET News' Caroline McCarthy to clear the air and talk about the site's future.

March 10, 2008

AOL buys social network Bebo for $850 million

International growth is on the mind of AOL--an unexpected buyer. Youth-oriented social site Bebo is wildly popular in the U.K., Ireland, and New Zealand.

March 13, 2008

Yahoo, Google, MySpace form nonprofit OpenSocial Foundation

The three companies have formed a partnership "to ensure the neutrality and longevity of OpenSocial as an open, community-governed specification for building social applications across the Web."

March 25, 2008

Comcast goes social with Plaxo acquisition

The purchase of Plaxo, an address book management and social-networking service, helps Comcast create a unified social-media experience across its Internet, voice, and TV properties.

May 14, 2008

LinkedIn gets its billion-dollar valuation

White-collar social network pulls in a $53 million Series D venture round led by Bain Capital, bringing its valuation to slightly more than a billion dollars--guess that's what happens when Bill Gates is a vocal member of your site.

June 17, 2008

ComScore: Facebook is beating MySpace worldwide

For the first time, the Mark Zuckerberg-founded social network has passed its bigger corporate rival in global visitors--but it still lags behind in the U.S.

June 20, 2008

Facebook opens up with Connect

Two apps that will benefit: Digg and Movable Type.

July 23, 2008

Does Facebook have an answer for MySpace Music

"Social music" is on the rise even as the music industry suffers. An album release partnership with iLike could be the first of many music deals for Mark Zuckerberg's fast-growing company.

September 15, 2008

Zuckerberg: Be patient, we're opening up

The young Facebook founder concludes the Future of Web Apps conference by telling developers that his company will gradually continue to edge toward the "open" model that so many of them embrace.

October 10, 2008

Facebook's financials: Not looking so hot?

Some sobering analysis comes today from pundit Michael Arrington, indicating that the social network may be unable to keep its bank accounts in sync with its rapid growth.

October 31, 2008

Twitter's Evan Williams: Making money through corporate accounts?

The newly reminted CEO of the hot microblogging company won't say anything concrete, still, but outlined some general prospects for a business model dependent on companies' eagerness to connect and communicate with the Twittering masses.

November 6, 2008

Twitter rebuffs a Facebook poke?

Apparently, the social network really was trying to buy the microblogging service. But Twitter's investors and executives would rather come up with a business model first, AllThingsD reports.

November 24, 2008

Facebook delays plan to let employees sell stock

Economic downturn forces CEO Mark Zuckerberg to indefinitely postpone plan that would have let vested employees partially cash out without taking the company public.

December 4, 2008

Additional headlines

Facebook plucks new COO from Google's sales ranks

Who will reign over Digg: Obama or Jobs?

Hey Facebook: No beer pong for you

Court: Don't blame MySpace for offline sexual assault

A whopping $35 million for RockYou's social-network apps

Yelp plans splashy debut in location-aware mobile market

Yahoo Mash: When getting social isn't enough

Analyst: Half of 'social media campaigns' will flop

Tweet me, baby, one more time

Invasion of the election apps

Pownce to shut down after Six Apart sale

Digg CEO says company's not for sale

 
Social networking

Social networks grapple
with the money question

By Caroline McCarthy
Staff Writer, CNET News
Published: December 16, 2008, 11:30 AM PST

When it came to the news headlines, it was a terrific year for social networks. Mostly.

True, the security holes and safety concerns are far from gone, and likely won't go anywhere any time soon. Nor will the existing copyright and trademark issues, like the whole Scrabulous debacle. But the likes of Facebook, MySpace, Twitter, and Digg were riding high on one big victory: Barack Obama, whose presidential campaign rocketed to victory on many of the social-media tools that were still getting denounced as fads just a year ago.

Facebook and MySpace, the world's two biggest social networks, launched elaborate voter outreach initiatives. Digg's traffic soared as political news reached a fever pitch. An official Twitter account for Obama became the microblogging site's most popular. Widget development companies, which rose to fame in 2007 when Facebook kickstarted the social platform craze, were getting contracts left and right to create election apps.

Obama at MySpace event

Credit: Caroline McCarthy/CNET News

President-elect Barack Obama, who amassed
a strong online following during the campaign,
was enthusiastically received in February as
he addressed a MySpace-MTV event.

It all provided some uplifting news for social-media sites as the economy began to crumble in September. But now that Obama is poised to take office, the election party's over and it's back to reality. As buzzworthy as it remains, the social-media industry still hasn't proven itself in the business viability department. This was a concern in Silicon Valley even before the financial downturn began to grow truly alarming: Twitter has not yet produced a business model. Facebook and Digg are not yet profitable. MySpace appears to be doing better, likely due to the fact that it's been owned by News Corp. since 2005 and has big-media advertising connections at its disposal.

Perhaps because of the financial climate, or perhaps because the era of Web 2.0 was drawing to a close anyway, there were no truly splashy new entrants into social media--no nascent company created the kind of sensation that a Facebook, or even a Twitter or Digg, had in previous years. Location-based mobile social networks didn't create the sensation that many had expected. And indeed, the recession's effects first hit the second and third tiers of social media, with companies like Imeem and Buzznet announcing layoffs. Pownce, a would-be Twitter rival, closed up shop entirely and sold its assets to blog software company Six Apart (which had itself gone through a round of layoffs). The beleaguered Yahoo shuttered its social-networking experiment, Mash.

On the bright side, there were some acquisitions: AOL bought Socialthing and Goowy--and in a whopping $850 million deal, acquired Bebo, a social network that counts most of its popularity in the U.K. and Ireland. Also, Twitter bought Summize, Comcast bought Plaxo, and social-app companies like the Social Gaming Network started amassing portfolios of widgets purchased from independent developers.

Facebook, meanwhile, tied up a few of 2007's loose threads. Putting the Beacon advertising snafu behind it and filling its executive ranks with former Googlers and Washington insiders, the company announced Facebook Connect in May and unveiled Engagement Ads in August. ConnectU, the onetime start-up that sued Facebook for code theft, received some sort of settlement--and two of its founders, Cameron and Tyler Winklevoss, placed sixth in an Olympic rowing event shortly thereafter.

Late in the year, a few of the data-portability and "universal log-in" initiatives that had been announced earlier in the year actually launched: Facebook Connect went live, as did Google Friend Connect and Viacom's Flux, and MySpace began its "Data Availability" project by helping to develop an extension that manages the OpenID universal log-in standard for the Flock browser.

But as with so much else, the year 2008 in social networking ends on a fairly low note. The recession recently stalled Facebook's plan to allow some of its employees to cash out stock options. MySpace CEO Chris DeWolfe has expressed concern about his company's ability to continue growing its ad-revenue footprint. Twitter and Digg, along with other players in the market like RockYou, Meebo, Yelp, LinkedIn, and Ning, have filled their coffers with venture funding and are hoping to keep growing while they wait out the storm.

As Facebook and MySpace keep scrambling for the top spot in social media, it's clear that this is no fad. The profitability issue, however, will be a sobering one in '09.

2008 Highlights

'Scrabulous' debate may rewrite the rules of the game

Wildly popular Facebook application is in hot water for similarity to classic board game. But could it be a marketing treasure trove for Scrabble's trademark holders?

January 16, 2008

N.Y. lawmakers announce social-networking safety legislation

Industry titans Facebook and MySpace are on board with Attorney General Andrew Cuomo's newly proposed bill to keep sex offenders off social-media sites.

January 29, 2008

The MySpace generation's got a crush on Obama

The Illinois senator took questions from MySpace users and an MTV studio audience that seemed to like him quite a bit.

February 2, 2008

Kevin Rose opens up and Diggs in

q&a In part 1 of a two-part interview, Digg's founder says a "smarter" social-news experience is coming--and that Yahoo Buzz doesn't sting.

February 28, 2008

Zuckerberg talks about Facebook's future

After an arguably disastrous SXSWi interview, Facebook's founder sits down with CNET News' Caroline McCarthy to clear the air and talk about the site's future.

March 10, 2008

AOL buys social network Bebo for $850 million

International growth is on the mind of AOL--an unexpected buyer. Youth-oriented social site Bebo is wildly popular in the U.K., Ireland, and New Zealand.

March 13, 2008

Yahoo, Google, MySpace form nonprofit OpenSocial Foundation

The three companies have formed a partnership "to ensure the neutrality and longevity of OpenSocial as an open, community-governed specification for building social applications across the Web."

March 25, 2008

Comcast goes social with Plaxo acquisition

The purchase of Plaxo, an address book management and social-networking service, helps Comcast create a unified social-media experience across its Internet, voice, and TV properties.

May 14, 2008

LinkedIn gets its billion-dollar valuation

White-collar social network pulls in a $53 million Series D venture round led by Bain Capital, bringing its valuation to slightly more than a billion dollars--guess that's what happens when Bill Gates is a vocal member of your site.

June 17, 2008

ComScore: Facebook is beating MySpace worldwide

For the first time, the Mark Zuckerberg-founded social network has passed its bigger corporate rival in global visitors--but it still lags behind in the U.S.

June 20, 2008

Facebook opens up with Connect

Two apps that will benefit: Digg and Movable Type.

July 23, 2008

Does Facebook have an answer for MySpace Music

"Social music" is on the rise even as the music industry suffers. An album release partnership with iLike could be the first of many music deals for Mark Zuckerberg's fast-growing company.

September 15, 2008

Zuckerberg: Be patient, we're opening up

The young Facebook founder concludes the Future of Web Apps conference by telling developers that his company will gradually continue to edge toward the "open" model that so many of them embrace.

October 10, 2008

Facebook's financials: Not looking so hot?

Some sobering analysis comes today from pundit Michael Arrington, indicating that the social network may be unable to keep its bank accounts in sync with its rapid growth.

October 31, 2008

Twitter's Evan Williams: Making money through corporate accounts?

The newly reminted CEO of the hot microblogging company won't say anything concrete, still, but outlined some general prospects for a business model dependent on companies' eagerness to connect and communicate with the Twittering masses.

November 6, 2008

Twitter rebuffs a Facebook poke?

Apparently, the social network really was trying to buy the microblogging service. But Twitter's investors and executives would rather come up with a business model first, AllThingsD reports.

November 24, 2008

Facebook delays plan to let employees sell stock

Economic downturn forces CEO Mark Zuckerberg to indefinitely postpone plan that would have let vested employees partially cash out without taking the company public.

December 4, 2008

Additional headlines

Facebook plucks new COO from Google's sales ranks

Who will reign over Digg: Obama or Jobs?

Hey Facebook: No beer pong for you

Court: Don't blame MySpace for offline sexual assault

A whopping $35 million for RockYou's social-network apps

Yelp plans splashy debut in location-aware mobile market

Yahoo Mash: When getting social isn't enough

Analyst: Half of 'social media campaigns' will flop

Tweet me, baby, one more time

Invasion of the election apps

Pownce to shut down after Six Apart sale

Digg CEO says company's not for sale