Social Networking Sites: Popular But Not Profitable

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It is difficult to benchmark using a prosperous social networking site, since there are none. There are many, even dozens, of highly popular social networking sites that have large user bases and high levels of traffic. Havenstein (2007) notes that even social networking sites with massive user bases have had difficulty driving advertising revenue. There are a number of roadblocks and excuses that companies use for avoiding social networking, but ultimately the decision is economic. Social networking sites must therefore find a way to make advertising economically viable for major advertisers while at the same time controlling the costs associated with running the business. Only then can a social networking site become truly prosperous. One of the biggest barriers that needs to be overcome is the lack of metrics available to measure the success of ads placed through social media. Ads in social media are often placed of the basis of context, so for example they might relate to someone's "likes" on Facebook. These ads, however, still take the form of banner ads and are generally disregarded by users, despite the context. A massive user base can help to overcome this, because advertisers need many thousands of placements to begin generating revenue. This means the networking site needs to be able to offer tens of thousands of placement in order to generate significant revenue. This poses a cost problem for social networking sites. In order to generate page impressions,

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