All products featured on WIRED are independently selected by our editors. However, we may receive compensation from retailers and/or from purchases of products through these links.
More than a year after "social networking" became the leading buzzword in internet startup circles, companies in the sector haven't gained the traction early enthusiasts predicted. Still, many of the bigger networking services say the number of users is growing steadily, and if they're not profitable already, they soon will be.
Looking at all the profiles of high-profile people who are members of social-networking services, one could easily get the impression that joining an online network is a pretty hip thing to do.
At LinkedIn, a networking site for business associates, one can look up profiles for Kelly Perdew, winner of the reality series The Apprentice 2, or Rob Glaser, CEO of Seattle-based RealNetworks. Even Bill Gates is a member of LinkedIn, according to the company, although his listing doesn't come up in standard searches.
On MySpace, REM lead singer Michael Stipe leads a discussion thread about the band's latest release. And over at Friendster, users can view "official profiles" of film and TV characters and sign up as a fan of, say, Will Smith's character in the film Hitch or Pamela Anderson in the upcoming Fox comedy Stacked.
At first glance, the proliferation of recognizable figures might seem to indicate that the hype lavished upon social-networking sites a year or so ago might not have been overstated. Such sites are no longer just a place where people attempt to boost meager social lives by connecting to their friends' friends. Instead, they offer a place for movers and shakers to join up in mutual recognition of the value of online networking.
At second glance, another explanation presents itself: Social-networking sites are getting heavily involved in marketing themselves. To draw new members, they're finding it helps to present themselves as the virtual equivalent of belonging to the "in" crowd.
"It's just like a dance club. You get a couple of rock stars to hang out in the VIP lounge, and everyone else wants to come," said Konstantin Guericke, vice president of marketing for LinkedIn. "Some of those dynamics are also important in business."
The attractiveness of social networking as a business model was underscored this week when Yahoo announced that it will launch a new service, Yahoo 360, that includes elements of blogging and social networking. The planned launch follows last year's entry by Google into the social-networking market with its own service, Orkut.
Heavyweight entries into the networking arena follow an assortment of startups, most launched in the past two years, which offer ways for members to connect to friends, classmates and business colleagues. While it's no longer especially trendy to talk about social networking (as compared with 2003, when forums in Silicon Valley dedicated to the topic routinely drew overflow crowds), early entrants to the field are largely still chugging along.
Although the field of social networking is a broad one, it basically consists of two areas: socializing with friends and professional networking. Each site has a slightly different way of setting up a network: Some require invitations, others will accept anyone; some place more emphasis on pictures, others stress career accomplishments.
What they have in common is the pursuit of a business model that will allow them to translate other peoples' social networks into profits for themselves. With this end in mind, a handful of sites, including Friendster and LinkedIn, have raised tens of millions of dollars in venture capital. While they haven't reached their goals yet, the sites' operators remain optimistic.
"Last year was really about separating ourselves from the pack," said LinkedIn's Guericke, noting that the site now has approximately 2 million users. "This year, the focus is on increasing the utility and starting to earn revenues."
This month, the site launched its first "premium" service: job listings. Employers pay to post open positions to LinkedIn's network of users. Guericke believes the job service, along with advertising revenue, will allow the company to break even early next year. LinkedIn raised $15 million in venture capital.
At the rival site Ryze, founder Adrian Scott said he's been turning a profit "for a couple of years" by charging subscription fees. The site allows anyone to sign up for free, but members have to pay to contact people who are more than two degrees of separation away. The site boasts 300,000 users.
To keep costs down, Scott employs a staff of just seven people to run Ryze. He also hasn't taken any venture capital, he said.
In the long run, Scott believes there is room in the social-networking arena for a variety of players, including both free and subscription-based services.
"If you look at the world, there are huge numbers of different networks and groups with varying needs," he said. "Like any other aspect of the internet, there's room for lots of variation and there's lots of demand for different features."
Business networking services see their core users as experienced professionals. Social networks like Friendster tend to be more popular among younger users. The site, which lets people string together networks of friends' friends, says the majority of members are between 18 (the minimum age to sign up) and 35. The most common age of a Friendster member is 25.
Friendster hasn't maintained the heady growth rate it saw in its early days, when its user base was increasing a staggering 20 percent per week. Still, it currently has a network of about 16 million members, hailing from all parts of the globe.
Michelle Wohl, Friendster's marketing director, said that Friendster expects to earn enough revenue next month to cover its operating costs and doesn't plan to raise additional venture capital. The site raised $13 million in 2003. The company did not give projections for future user growth.
But Chris DeWolfe, chief executive of the competing site MySpace, claims that when one looks at the number of unique users, his company is getting 8 times the volume of Friendster. The site, which allows people as young as 16 to sign up, takes what DeWolfe calls a portal strategy, combining social networking with blogs, games and music. MySpace launched a year and a half ago.
"We don't believe social networking is the end-all, be-all," said DeWolfe.
MySpace users tend to be on the younger side, typically between the ages of 16 and 32. The company has used its youthful user base as a selling point for advertisers, who are its main source of revenue.
In the long run, Rich Rosenblatt, CEO of Intermix Media, the company that owns a majority stake in MySpace, believes the biggest draw of social-networking sites will be as a platform for people with common interests to get to know each other.
"It's really given the ability for people to meet in a non-dating site," Rosenblatt said. "Before these tools were available, the only way to meet someone online was on a dating site."
