AFI BLOG: Media and Technology

Everywhere and nowhere - The Economist.com

Social networking will become a ubiquitous feature of online life. That does not mean it is a business

A LARGE but long-in-the-tooth technology company hoping to become a bigger force in online advertising buys a small start-up in a sector that everybody agrees is the next big thing. A decade ago, this was Microsoft buying Hotmail—the firm that established web-based e-mail as a must-have service for internet users, and promised to drive up page views, and thus advertising inventory, on the software giant’s websites. This month it was AOL, a struggling web portal that is part of Time Warner, an old-media giant, buying Bebo, a small but up-and-coming online social network, for $850m.

Both deals, in their respective decades, illustrate a great paradox of the internet in that the premise underlying them is precisely half right and half wrong. The correct half is that a next big thing—web-mail then, social networking now—can indeed quickly become something that consumers expect from their favourite web portal. The non sequitur is to assume that the new service will be a revenue-generating business in its own right.

Web-mail has certainly not become a business. Admittedly, Google, Microsoft, Yahoo!, AOL and other providers of web-mail accounts do place advertisements on their web-mail offerings, but this is small beer. They offer e-mail—and volumes of free archival storage unimaginable a decade ago—because the service, including its associated address book, calendar, and other features, is cheap to deliver and keeps consumers engaged with their brands and websites, making users more likely to visit affiliated pages where advertising is more effective.

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