While I believe that legacy sites like MySpace and Facebook will remain major players in the world of social networking for many years to come, I don’t anticipate that they’ll lead the charge into the next generation. I liken this to the early development of network television where the large majors (NBC, ABC, CBS) paved the opportunity for more targeted, quality focused networks like HBO and Showtime. HBO needed the large networks to set the stage for verticalization/specialization just as we, and other talented folks planning Social Networking 2.0 products, needed MySpace and Facebook’s open network approach to pave the way for more focused, high-quality’ programming.’
The concern that I have for those following the ‘network model’, which is reliant on volume and reach, is that they typically crest their apex of value early on in their life cycles then end up fighting a lifetime battle of diminishing returns in their core business as they struggle to diversify and adapt their inherently flawed business models (see network television over the past 30 years).

I believe that both MySpace and especially Facebook, are either at or near their long-term valuation apex. We are already seeing migration from Facebook, particularly in the adult, gen X demographic away from consistent and active usage. Furthermore, network business models remain vulnerable to what we call the Law of Diminishing CPMs. On Facebook, for example, the primary user activity (95%+) is centered around communication. Any consumer marketer worth his or her salt knows that the most difficult activity to leverage and monetize is communication. When you’re communicating with your friends as a primary use case, the last thing in the world you’re likely to do is click on a Proactiv ad and head off to another site. This, in my opinion, is the Achilles heel of the Facebook business model. The Law of Diminishing CPMs kicks in not so much because people become increasingly adept at ignoring Facebook and MySpace’s banner ads but that the MORE members Facebook attracts, the MORE focused the communication becomes (due to the volume of communication outlets) and the likelihood of you being distracted to a search mode via banner advertising continues to decrease over time. So ironically, the more members Facebook gets the lower the value of their ad inventory becomes.

Ironically, we believe that the next generation of social networks won’t be social networks at all in the current sense of the category, but exclusive membership organizations. Ultimately, Fuego Nation is an exclusive membership club and our revenue generation opportunities are predicated on that foundation. This give us the opportunity to create a hybrid business model (advertising, subscriptions, direct to member services) that companies like MySpace, Facebook, Bebo, even LinkedIn) can’t really do. My recommendation to companies building high quality, sustainable businesses in the Social Networking 2.0 world is to begin with a business model, a roadmap of monetizable assets, the foundation of experience/brand and then determine which features/functions should be built to support that user experience. It seems odd to me that companies would create user activity and behavior around a utility and then step back and say, oftentimes years later, ‘How do we monetize our traffic?” The focus should be on providing valuable products and services to each member from day one. If I only have one member, how do I deliver so much value to that user that they would be more than happy to lay down their credit card in appreciation?

- BMK

Highly interested in the launch of Fuego Nation along with the response of the targeted demographic. Question for you: In reading some of the posts on your blog, do you foresee platforms such as Facebook and Myspace maintaining their lead in light of the new Social Marketing 2.0 platforms such as FN? What is your gut response on how they will adapt?

Also, I’m curious of what your views are on the younger demographic that freely posts what would be seen by many as deeply private? In 10 to 15 years, as this group of people matures, will they become more conscientious about their privacy or has the fact that this generation has grown up being so accustomed to sharing literally their darkest secrets, that this will fundamentally change the desire for strict privacy controls in the future?

Thanks for your time.

Erik