Everyone needs a business model, even social networks

Most of you will remember the dot com bust in 2000, but do you remember why it happened? Companies had great ideas but no business model. They created websites with great content and were able to draw millions of visitors, then they would sell for a ridiculous price. But what was being purchased? Nothing…..no plan for growing revenue or increasing visitors, no marketing strategy, no analysis of the competitive landscape. Businesses will fail without a business model, a plan on how to do business. This does not mean financial projections, this means a strategy for finding new customers and retaining existing ones. Even I, as someone that runs a small consulting firm of one, have a business model. I have a 12 step model of how I will interact with new prospects and how I will continue to provide value for my existing clients.

I am fearful that many of the social networking sites that we currently use so frequently are following along the same path as some of the dotcom busts from 2000. Tell me how Twitter is going to make money….people are getting tired of it already and they do not sell advertising. How about MySpace? Facebook has not been profitable since its inception, yet companies continue to buy up small pieces of it for hundreds of millions of dollars. So what is happening here? People are desparate to find an avenue to the teenagers of today and are willing to pay ridiculous amounts of money to find them. What they forget is that these teenagers hate to spend money and feel that they are entitled to everything for free, like the world owes them something. How do you sell to a demographic like that?

Social networks need to figure out what they want to be and history shows us that it is unlikely that they will be successful without a business model on how to find and retain customers for longer than a few weeks. It should be interesting to see how everything shakes out over the next few years. I am sure you will all be following the progression closely through a series of Tweets and answers to "What am I doing now?"

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