The Economist has published a very good consideration of the social network space called “Everywhere and Nowhere.” The article aligned well with stuff I’ve been thinking about, and inspired me to write a point by point response. (I put text from the article in italics, followed by my comments.)

Web-mail has certainly not become a business. Admittedly, Google, Microsoft, Yahoo!, AOL and other providers of web-mail accounts do place advertisements on their web-mail offerings, but this is small beer. They offer e-mail—and volumes of free archival storage unimaginable a decade ago—because the service, including its associated address book, calendar, and other features, is cheap to deliver and keeps consumers engaged with their brands and websites, making users more likely to visit affiliated pages where advertising is more effective.

I think this misses the point about Google’s strategy, which is about gathering, storing, processing, and ultimately monetizing knowledge about users and their behaviors. The more services Google offers, the more knowledge they acquire. Some worry that Google’s “reading their file,” but this assumes an application of human intelligence to the knowledge base that Google’s building. It’s all semantic, handled by machines, and focused on three things: “organizing the world’s information,” being useful, and finding subtle and reasonable ways to monetize processes and services. Gmail is extremely valuable in this context.

Social networking appears to be similar in this regard. The big internet and media companies have bid up the implicit valuations of MySpace, Facebook and others. But that does not mean there is a working revenue model. Sergey Brin, Google’s co-founder, recently admitted that Google’s “social networking inventory as a whole” was proving problematic and that the “monetisation work we were doing there didn’t pan out as well as we had hoped.” Google has a contractual agreement with News Corp to place advertisements on its network, MySpace, and also owns its own network, Orkut. Clearly, Google is not making money from either.

I suspect Google really is making money on its deal with MySpace, and even if not, it’s still valuable in the context I described above. Orkut didn’t work because it didn’t have social gravity to hold users. Early social networks like Friendster and Orkut had early surges of activity as many users came onto the systems and four or invited their friends. The activity of building yourself into a social network was fun and exciting. However once you were done adding people, there wasn’t much left to do, so you would drift to the next social network platform and start over. Eventually users grew tired of platform-hopping, and the term du jour was “YASN” or “yet another social network,” as in “WFT? It’s YASN.” MySpace and Facebook have worked so far because they’ve found ways to engage users past that first flush of network-building enthusiasm. It’s actually very plausible that they will be profitable as ad-based systems, if users continue to stick and do more stuff in system (thereby be exposed to more ad impressions, and click through some percentage of ads served).

Facebook, now allied to Microsoft, has fared worse. Its grand attempt to redefine the advertising industry by pioneering a new approach to social marketing, called Beacon, failed completely….

Beacon’s still there, Facebook is still growing, and Facebook is still selling more and more ads. I wouldn’t count Facebook out because of any one clueless blunder.

So it is entirely conceivable that social networking, like web-mail, will never make oodles of money. That, however, in no way detracts from its enormous utility….

A point we’ve been making…social networks will be critical for business, but that doesn’t mean that social network platforms will be lucrative. I do believe that high-volume leaders (MySpace and Facebook) will make money from advertising, and it’s pretty clear that this is the year advertisers take the web seriously again because – another point we’ve been making – unlike the 90s, we really do now have a critical mass of adoption. It’s not hard to imagine the web as the next television, where ads are concerned, and at the moment social network platforms look a bit like high-rated television networks. Facebook is like NBC’s Thursday night television in the 80s and 90s.

Social networking has made explicit the connections between people, so that a thriving ecosystem of small programs can exploit this “social graph” to enable friends to interact via games, greetings, video clips and so on….But should users really have to visit a specific website to do this sort of thing?

For months I’ve been saying that Facebook is the next AOL – a gated community that works for a while, but ultimately can’t be open enough to sustain prominence. This is probably true of MySpace, too… at the moment, both systems are growing and capturing mindshare… will this last? Steve Case once told Bruce Sterling at a party that he saw the Internet as a “seed community” for AOL. That was clearly hubris. If you understand the semantic web, the potential in data portability and application portability, and the promise of a system like Ning, you can see the handwriting on the wall. The Economist quote’s Forrester’s Charlene Li: “We will look back to 2008 and think it archaic and quaint that we had to go to a destination like Facebook or LinkedIn to be social.” Social networks will be anywhere and everywhere, and the data will be interoperable with many kinds of systems and platforms and devices… and proven, simple, accessible technologies like email, IM, SMS, blogs etc. will continue to rule, untethered to any particular platform provider. MySpace and Facebook will still be there, but so is AOL. So, for that matter, is the WELL, the seminal online community that’s rocking on after over twenty years. The WELL has never gone away, and it doesn’t lose money, but it’s never made anybody rich, either.

The opening of social networks may now accelerate thanks to that older next big thing, web-mail. As a technology, mail has come to seem rather old-fashioned. But Google, Yahoo!, Microsoft and other firms are now discovering that they may already have the ideal infrastructure for social networking in the form of the address books, in-boxes and calendars of their users.

A dean that the University of Texas McCombs Business School was telling me earlier this week that the students don’t do email anymore. “That’s something their parents do, they all use SMS.” I suspect that’s an exagerration, but I wouldn’t bet the bank on email. Everybody still uses it, and will use it, but it’s also pretty broken. IM is a safer bet, as is Twitter, which is increasingly important to my network of friends and colleagues. The Economist quotes David Ascher of the Thunderbird project, who says “e-mail in the wider sense is the most important social network.” I’m not so sure – in my world, email is a deluge, and if it’s a network, it’s full of strangers, including roving gangs hoping to rip me off.

One last quote from the Economist article, the last paragraph: This kind of social intelligence can be applied across many services on the open web. Better yet, if there is no pressure to make a business out of it, it can remain intimate and discreet. Facebook has an economic incentive to publish ever more data about its users, says Mr Ascher, whereas Thunderbird, which is an open-source project, can let users minimise what they share. Social networking may end up being everywhere, and yet nowhere.

I would add that it makes sense to be platform-agnostic, and focus more on who you know, who you need to reach and get to know, and how your social network – not the platform, but the actual set of people that you know, and people they know – is relevant to your strategy. We’re also thinking a lot about how to optimize effective online collaboration and address internal logistics (e.g. operations, cost control) using approaches mediated by social media, and technologies that make social networks increasingly visible.

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