Silicon Valley Watcher - reporting on the business of technology and media

In a conference call with financial analysts following its Q4 financial report, Google said it is having problems monetizing social network sites.

Google earnings miss Wall Street estimates By Elinor Mills News.com

... the company had trouble making money off ads on social networking sites, including News Corp.'s MySpace, Google executives said. Under the MySpace deal, Google is committed to paying revenue even if advertisers don't click on ads.

"We have found that social networking inventory is not monetizing as well as expected," said Chief Financial Officer George Reyes.

This increases the challenge for Facebook as it searches for a way to monetize its service without alienating its users. Microsoft's recent investment in Facebook values it at $15bn, raised the pressure on management to justify that valuation.
This is a challenging situation for any CEO of a large media business, especially a 23 year old with no prior experience. Figuring out a sustainable business model that meets Facebook's $15bn-plus valuation is a top priority for Facebook's investors. They will likely seek to bring in a new CEO with more experience in the same way Eric Schmidt was brought in to Google.

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Currently, Facebook seems to be emerging as the top dog social network, also called a "social graph." Reid Hoffman, founder of LinkedIn, said at the Graphing Social Patterns conference,"It is likely that there will be many social graphs, family, religeon, business. I'm not a big believer in just one social graph. It is very unlikely."

However, Mr Hoffman's scenario doesn't preclude one host of many social graphs, which Facebook is currently well positioned to provide.

Mr Hoffman said the challenges of social apps is to find something that is sustainable and can stay ahead of "me too" type applications.

He added that the economics of the Facebook platform are not yet clear but could become clearer as the platform evolves. He points out that there will be massive competition:

-Someone will try to give away anything you charge for.

-At least 3 people will copy anything that works.

-Competition will come from companies and individuals.

-Newness is extremely important and a challenge for developers.