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Monday, October 25, 2004 - Page updated at 12:00 A.M.
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Social-network sites scramble for prosperity

Knight Ridder Newspapers

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A year after Silicon Valley entrepreneurs launched a slew of faddish social-networking companies — Web sites like Friendster, Tribe Networks and LinkedIn — reality is beginning to bite.

Most of these sites are still seeing large numbers of active users sign up for what they offer, which is essentially an online network of contacts with friends or business partners, and their friends. But with all the buzz came a lot of me-too companies hoping to crash the party, making it difficult for any of them to make users pay.

That's why social-networking sites are looking for ways to make money. It's all leading to some serious jostling, as they are courted, or nurtured internally, by big incumbent players like Monster, Yahoo! and CareerBuilder eager to cash in on their online traffic.

There are two strategies now in play. The first: Some startups have decided social networking will never make any money, but they'll try to make money off other services instead, such as job or apartment listings. Mountain View, Calif.'s LinkedIn is one.

The second — used by dozens of companies, including Friendster, MySpace and Multiply — is to draw so many users that advertisers will pay to be on the Web site.

The problem, though, is that an ad-dependent life is precarious. Industry leaders Friendster and Orkut may be off to a good start. But younger, quicker companies can emerge and steal their users easily, industry observers say.

Mike Sigal is chief executive of the Guidewire Group, which helps companies introduce their products to the market, and has tried out many of the social-networking sites. He lists a number of upstarts, including Multiply, MySpace and Dodgeball, which are all gaining momentum.

Multiply, for example, gives users the same options as Friendster does, and more — they can also blog, share music files, post movie reviews or pictures.

Multiply has even found a way to use members' log-ins and passwords to invite in their entire network of friends from other sites, says Sigal.
"Here comes a social-networking company out of nowhere," observed Sigal, "that takes advantage of all the work that the two leaders have already done."

And while advertisers are starting to pay more money to well-frequented Web sites, it may not be enough.

"The update is, it [social networking] continues to be a loss-leader," said James Currier, founder and CEO of Tickle, a San Francisco online-dating company. "Social networking may end up being a utility."

Tickle makes money by charging people for online-matching services, including personality tests and questionnaires, and it launched a social-networking service to drive people to its services for pay. In May, Monster, the online-jobs site, bought Tickle.

Tickle's Currier says one intent is for job search and social networking to go together. The possibilities are numerous.

For example, a company could pay Monster to list a job. A user could see the listing, then search a network of contacts to find someone who works at that company.

Along the same lines, job site CareerBuilder (part owned by Knight Ridder) has allied with Tribe Networks, believing Tribe can drive traffic to its job listings. And Yahoo!, say industry insiders, is working on a social-networking service, Mingle, that it hopes to unveil this year — reportedly with the goal of driving users to its own job service, HotJobs, and other portal services. Yahoo! wouldn't comment directly on Mingle.

But Tribe has no such plans, perhaps because charging for basic service would lead to losing a lot of customers — especially when competitors are free.

LinkedIn has made inroads by letting people use its service for free, but with a view to start charging heavy users, mostly recruiters.

The service is for business relationships, and founder Reid Hoffman thought users might also want to use it to open sales channels for their company's products. But more people are using the site for job matches.

With a million users having posted their profiles at LinkedIn, it's turning into a great recruiter database. After Hoffman starts charging recruiters and others for premium service, he hopes to hit profitability next year.

Copyright © 2004 The Seattle Times Company

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