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Is "membership" the best measure of a social networks value?
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6 Answers
No. Nobody buys social networks based on membership size. Ok, well maybe AOL does.
There are base metrics that any buyer would want to see like revenue-per-user, activity-per-user, repeat visits per user, user demographics, etc., but many times a social network will be solicited by wildly different potential acquirers with wildly different sets of secondary metrics that are more inline with their current businesses.
An online publisher may need to plug a hole in their 18-34 year old demo. Or a merchant might buy a social network to support a new product line...ie, a women's site to catalyze a knew cooking accessory line (wow, that came across very Texan of me, but I've seen that done).
Another example would be that Microsoft, Yahoo, or Google could afford to pay more for a Facebook audience than could a private equity firm based on the same primary audience metrics.
An online publisher like NYT or Yahoo would get more value from a Digg* acquisition than a technology provider like Google.
It's usually these secondary metrics and goals that make the deals interesting. The primary metrics are pretty homogenized and people get fired quickly for deviating too far from them.
You should check out Tweako. Many think it's the next Digg.
Off the top of my head, I'd would say the answer to your question is "no."
Size matters, but not in the way you might initially think. I know everyone likes to point to their membership numbers, their list size, their Website visitors, but those really are not valid IMO when measuring value of any kind of social network. I define social network here very loosely to include any destination that aggregates people in some way.
A social network is only as valuable as the number of people that are actively engaged in the network. If you have a network where only a small percentage are participating, that is the real size of your social network. However, if those that are actively engaged are really invested, their value and that of the network goes up, particularly if they are influencers.
One example of a social network that I deal with on a daily basis are the databases of opt-in subscribers to email newsletters, etc. of our customers using our email marketing technology. The open rates and click-through rates are very real measurements of the value of their "social network." But, you can't ignore the next measurement which is whether they take action or not by forwarding the email, buying something, completing a survey, etc.
Back in the dark ages of the last millenium before the dot-com implosion, everyone was always talking about aggregating eyeballs, hits, pageviews. None of it meant anything in the end if it didn't translate to revenue in whatever currency had been chosen.
So, to make a long story short, I believe the best measurement of a social network's value is the percentage of the total membership take action.
Most social networks still drive revenue on a CPM basis. Bored secretary (or Finance Guy) jamming around Myspace all day is racking up the page views...and, thusly, revenue. Same with throngs unemployed lawyers who now sit at home and fill out Facebook quizzes all day. Those are most definitely valuable power users. At least up until the point they take the "What Is Your Porn Name" quiz and drive other users away from using the service.
For niche social networks like Tweako (or Kirtsy), you see less locust-like activity and a higher-quality interaction. I think the average user on Tweako is a C-level exec.
I agree with both of you. And I imagine the different patterns of usage could complicate the valuation. There are people who "hyper tweet" (i just made that term up) or are on facebook all day and their are people who visit their facebook / myspace / linked in pages a few times a month. This creates a real disconnect between audience metrics like members and usage metrics like pageviews. Does increase usage really make someone a "more valuable member" as someone who "hyper tweets" may be remarketed to over and over. I wonder if a niche social network like Tweako will see a more even usage pattern across its members.
good info. i had never heard of tweako until it made this list
http://mashable.com/2009/05/29/social-media-developer-resources/
You need to find proxies for both "membership" and "commercial intent" to value a social network. There are obvious metrics that track membership - things like # of members, page views, visitors... The numbers here can be staggering.
Metrics that track the commercial intent of a social network's audience are less obvious and frankly the numbers aren't that great. There's not a lot of commercial intent exhibited on Facebook, Twitter, and god forbid MySpace. That's where Google hit its homerun - they combined a massive audience with an activity - search - where there's a high degree of commercial intent. Every day, there are tens of millions of people searching for information on Google related to purchases.
Now get back to work.
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