We’ve become used to all the standard ways of comparing the relative values and rankings of social networks, and the markers for monitoring their growth. Unique users has always been the most key factor, and useful as it was – it was also rather limited and actually sometimes told us very little. The data always felt slightly one-dimensional, as if there were more pieces to the jigsaw that we weren’t seeing – like a football score that only tells you one team’s result and not the others.
Which is why I’m delighted to read some fascinating posts over at Techcrunch about a new way of modelling the true value of social networks. The new system is based on a key principle – that users in countries with higher average online advertising spend are worth more (financially speaking) to social netoworks. Therefore, in terms of monetising networks, a UK user (1st in average online ad spend) is worth more to a network than a US user (4th).
Techcrunch first used this method over a year ago – but user numbers and distributions have changed drastically since then, so they’ve now delivered an updated version which is far different from that of one year ago. The new estimates value the total social networking market at $27.1 billion, with Facebook representing around $10bn of that figure. Obviously networks which have lots of users in countries with relatively low advertising spends – Orkut for example – rank far lower under this new method of valuation.
There is a danger in dismissing huge players in the social network game (like the aforementioned Orkut) with this new ranking system – simply because of their relative weakness in terms of immediate monetisation potential. However looking over how much the results have changed over the past year shows just how temporary these standings in fact are. Moreover results from China – a major market for social networks – are currently not included in this version of the league table.
Minor shortcomings aside though, this work from techcrunch represents a real breakthrough in terms of our ways of understanding the real market values of social networks, and provides a more complex system of generating data that directly represents the revenue-generating processes of the networks. It might also lead to a slight change of tactic for up and coming social networks – moving away from an ‘as many users as possible’ goal, and more to targeting already saturated markets (like the UK) knowing that even a handful of users here is worth more in a financial sense than a hundred elsewhere.
All in all though – fantastic work at Techcrunch, and good news for social networks all round in that the sector (and the ‘pie’ as it were) seems to be expanding each and every day.
Dejan Levi