Profiting from Social Networking

Users at social network Facebook are exploring software applications by outside developers, but the question remains: How do you make money from them?

by Maha Atal

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Here are two potentially billion-dollar questions: How can you turn the Web's social-network users into consumers? And how can you turn idle browsing into a flourishing bottom line? Back in May, marketers hoped they might have the answer when social-networking giant Facebook opened its network to external developers. This instantly allowed them potential direct access to a user group of millions who are notoriously unimpressed by traditional advertising methods. The only challenge: developing real-world applications that users might want to embed in their profiles, which would have a real-world effect beyond mere entertainment.

Three months later, it's clear that there's no foolproof formula for success. Companies categorize their own applications from a list of 22 options and, as such, "businesses" come from across the board. In fact, the most popular "business" listing is Total Sports Fan, a sports application run by Boris Silver, a Wharton School student who has no plans to exploit the app as a business. In fact, he says, he listed it in that category because "he just kind of wanted to." This free-and-easy attitude is all part of the territory, and other, more serious-minded ventures need to not only understand this attitude but be willing to live with it.

Know Your Audience

Four of the most popular applications within the category include the virtual trading program Fantasy Stock Exchange, a recruitment specialist called Jobster Career Networking, an environmental activist app known as I am Green, and a person-to-person loan service called the Lending Club, which has what may be the most successful business model. Though they've attracted 174,000 users among them to date, capitalizing on those users is still a challenge. Here, we assess what they're doing right, analyze what they could be doing better, and determine what their stories can teach other companies that want to enter the space.

First: This is Facebook, kids. Despite its exploding demographic, this is still a forum for the young: 56.4% of users are under 35, according to ComScore. Applications need to be appropriate and relevant to that audience. Those hoping to extract money from a Facebook user need to understand what's at the network's core. Kevin Rablois, vice-president for strategy at San Francisco-based Slide, the largest developer of Facebook applications, says there are two ways for a business application to grow: through exploiting its social side or by providing users with a means for self-expression.

The Fantasy Stock Exchange (FSX) application, sponsored by virtual stock trading site HedgeStop.com, is currently the second most popular business application, with 92,000 users signing up since its launch in early July. On the application, as on its mother site, users trade virtual money based on real-time figures provided by NYSE and NASDAQ. The application loads content directly from HedgeStop.com and the 18- to 35-year-old players using it represent a similar demographic to those already using the company's core Web site.

Getting Beyond Marketing

HedgeStop.com hopes to earn money by selling banner advertising space on its application pages, promoting the idea that virtual traders can be real spenders. But since Chief Executive Daniel Carroll admits that targeted users are "mostly beginners" who don't yet have real funds to trade, they are also unlikely to be big spenders. Not to mention that an old-fashioned ad business model rather misses the point of the forum. Young users are wary of potential manipulation, and may be turned off FSX altogether if advertising gets too intrusive. Finally, the application has yet to offer features unique to Facebook. There seems to be no reason users shouldn't simply go right to HedgeStop.com.