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Marconi plays the mamba
listen to the radio
don't you remember...
We built this city we built this city on rock an' roll!

—Jefferson Starship

Last year, I wrote an article that began with, "Something truly extraordinary has been happening in the online world over the past two years, but unless you are between the ages of 16 and 25, you probably don't even know about it. But that won't last much longer."

Those words have proven to be prophetic indeed. The growth of MySpace has been front and center in the media over the past 12 months, in part because of the continued incredible growth of the venture but also because of social outrage generated by those who view it as an inappropriate and unsafe environment for teenagers.

I've spent the last year heavily immersed in the social media industry. So it seems fitting to revisit the topic and take a look at what has happened, what has changed, and what we have learned about the online social networking business model over the past 12 months.

The fundamental economic premise underlying social media ventures is that much of the cost of operating a social media Web site is largely insensitive to scale. The social network provides a mechanism for generating content while the users do all the actual content generation.

The objective then becomes creating a large enough user base such that the revenue generated per user is greater than the costs of operations, spread out over the entire user base. If this can be achieved, then the operating margins are potentially quite exceptional indeed.

No one has successfully done it yet. While the basic software design for a social network can often scale easily, the costs of providing customer support to an ever-increasing user base are not entirely insensitive to scale. Nor are the costs of providing servers and bandwidth. As pages served increase to very large numbers, it becomes more and more difficult to find sufficient ad inventory to serve out in association with those pages. And the one thing that is fairly certain based on results to date is that profits won't be achieved simply from ad revenue served on top of user-generated content.

MySpace went online in August 2003, with an official public launch in early 2004. The following two graphs show the total number of MySpace profiles and unique visitors per month over a period extending from April of 2005 to the present.

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ABOUT THE AUTHOR

Cliff Kurtzman (www.kurtzman.biz) is CEO of the consulting company ADASTRO Incorporated (www.adastro.com) and Executive Director of the social engagement venture MyCityRocks (www.MyCityRocks.com). Cliff was a founder of the Internet marketing industry in 1994 and he has deep expertise in the fields of Internet marketing and advertising, corporate branding, social networks, and the creation of online communities. He has a Ph.D. from the Massachusetts Institute of Technology.