MySpace is by far the most valuable social network. - Inspired by Michael Arrington

Matt Marshall of VentureBeat points out some holes in Arrington's analysis, and I'd have to say that he may have valid points here. (http://venturebeat.com/2008/06/23/the-real-market-value-of-social-networ...) For one, while Arrington talks about spend per user, Marshall points out that types of user matters. He argues: "Facebook users enjoy higher income levels than those of MySpace because Facebook started among those who attended top universities." Marshall also points out that Arrington's analysis solely looks at today's numbers, while Marshall ventures into future scenarios for growth across these major social networks. Finally, Marshall evaluates standard business cases, such as market position and profitability, and comes to the conclusion that Facebook's value may in fact surpass that of MySpace.

I think that we can apply some international political theory here to help flesh out the debate between MySpace and Facebook - the difference between "hard power" and "soft power." MySpace, Arrington's revenue giant, has plenty of hard power; that is, it can use its economic heft to forcibly influence other sites to behave in certain ways.

Facebook, on the other hand, has more soft power than it knows what to do with. Soft power is the ability to subtly coerce other entities to behave how one wants them to behave. Facebook's culture, aesthetic, and values have become the envy of the social networking business. And, like in international relations, soft power is recognized as being vastly more influential. It's cheaper and more sustainable in the long run.

The only problem with soft power is that it is, by definition, impossible to measure. But there's no doubt that Facebook has it in droves. I wouldn't be too quick to say that MySpace has Facebook beat in terms of value just yet - if ever.

I agree with this statement if Arrington's numbers are true – it's almost silly not to. Even though Facebook is bigger, MySpace is still more profitable for one reason alone -- it's better designed to make money.

In the beginning, people valued social networking sites based on potential rather than revenue. This made sense because there was no revenue, however in the past year ad space has been sold on social networking sites with varying degrees of success.

Take a look at Facebook. Unfortunately for the site, users have used the site's own tools (groups/events etc.) to rally against its attempts to make money off the Facebook user base, and for now we've seen how far that can go without further backlash. ASmallWorld also had similar problems gaining its users to accept ads on its site.

The real reason why MySpace is the more profitable site is that its just a much more crassly commercial site in my opinion, and this is why we haven’t seen as much of a backlash; it's users are already used to it. MySpace has always been filled with ADD inducing ads, and thus never had that 'pure' noncommercial appeal which a user can grow attached to.

There's one simple reason why Myspace makes more money and why it's more valuable: the basic layout of a MySpace page. It has been designed around the ads, and it's pages are so busy that they blend into the users' own additions/applications/etc. Ad space can only grow from there, and increased ad sales means increased revenue. So I agree with Arrington that, since ad value is the only tangible way to measure a social networking site's worth, MySpace is more valuable.

I think Arrington has to recheck his numbers, as Facebook is (or already has) surpassed MySpace in unique users worldwide (http://news.cnet.com/8301-13577_3-9973826-36.html). Plus, with the hyped (hopefully, not overhyped) redesign Facebook plans to drop soon, they could become the favorite with advertisers. MySpace used to have the market cornered when it came to users promoting themselves as musicians, etc., but with the Pages application, Facebook has narrowed that gap as well.

Here's an interesting thought... maybe "valuable" should be used to describe the social networking site with the highest response rate to online advertising. You can tally the advertising dollars spent... but that only tells you what we already know, and that is that major brands will ALWAYS gravitate toward what's hot, for fear of being left behind the "trend wave", and social networks are the hot place to be.

In my 15 years in the advertising business, I know one thing for sure... my clients will willingly spend unholy amounts of money to ride that "trend wave" because they think it gets them somewhere, but very few actually know if their investment pays off. If we want to really understand "value", we need to see tangible results as proof.

This is a very telling idea and something that I've thought about often. Facebook is in a tough position because the users' with the highest engagement numbers on the site are broke recently graduated or current college kids. It is one reason why I believe online dating sites may be in a very good position to monetize their networks. They operate in one of the last internet industries that charge premium subscription fees (their users are willing to spend up to $60 a month). By creating networks on these sites, in addition to the couple matching, they are in a great position to leverage advertisers with a user base that has a high propensity to spend money online....

Facebook may have the lead in monthly unique visitors now, but it is still bleeding money. Don't forget, a month or so back, they actually had to BORROW 100+ million dollars to cover basic operating costs (their stated reason was "more servers"). That does NOT bode well. MySpace, on the other hand is already profitable.

Facebook's growth is also largely in Asia and Eastern Europe (via the several foreign-language editions of its site that have been released in the past year). India, for instance, is nearly tied with Canada for the #3 spot for where Facebook's traffic is coming from... India??? Unless you have a reason to target Indian consumers, the real marketing $ is in Western Europe and US/Canadian traffic (the consumers with the most disposable income).

The CTR (click-through rate) for Facebook ads also makes it basically a waste of one's time -- 0.04%... MySpace, on the other hand, provides a little more bang for your buck, with an average CTR of .10% .

3 years from now, there will be no Facebook... Unless it can find a sustainable business model, or sell itself to an industry leader willing to take on a loss-leader in return for exposure.

BTW, Mike should have used the CTR numbers, instead of ad-spend. That's the "tangible proof" (i.e. real results that affect the bottom line) that Gary was looking for. With the CTR numbers, it's a fairly clear winner.

Michael Arrington has raised what may become the classic C21st debate about Social Networks - that is the value of users versus customers. Gates (Microsoft) claims he has customers while Schmidt (Google) has only users. It is a valid argument. Gates has a 'revenue model' that is embedded into the Microsoft presence. Shcmidt has a 'revenue model' which is separated from yet attached to the 'free search' transactions Google provides its users. What is the potential for the revenue models of MySpace, Facebook, LinkedIn, etc to grow into the future? That is the question investors want the answer to before they place a $ value on these assets. Potential buyers will answer that question in different ways and come up with a different $ valuations for those assets. The point is any potential buyer will evaluate the revenue model because that is the commercial asset within these Social Networks. It would be a totally moot point if a Social Network was wholly funded by taxpayers funds (some type of 'shadow pricing' mechanism might be invoked here) - then the question is what is the usage, about social cohesion, about efficiency and effectiveness as a social medium, about content, etc. Here the question is all about the valuation placed on the 'revenue model' attached to a social network. Nice one Michael Arrington.... .