By Seth R. Alpert
Originally published in MediaWeek, October 6, 2008

With the success of MySpace, Facebook, Bebo and LinkedIn, many media companies have launched (or are considering launching) online social networking sites aimed at B2B marketplaces.

Debra Aho Williamson, the senior analyst at eMarketer who wrote the report, said, "As the number of business users of social networks increases, advertising expenditures will rise accordingly, reaching an estimated $210 million in 2012." She also predicts that marketers will spend far more over the next few years to create and manage their own social networks for business customers, partners, suppliers and vendors.

So, are online social networks viable in niche markets?

Based on our surveys of senior executives at leading media companies, the answer is that social networking Web sites are not going to be viable in most cases. Hitwise, a leading online competitive intelligence service, has validated this skepticism by reporting that only 4 percent of U.S. online retail traffic is driven by social sites, which is significantly less than the 29 percent of online retail traffic that is driven by search engines.

In fact, vertical search engines may provide a cautionary tale for B2B publishers hoping to generate revenue via social networks.

About four years ago, the success of Google prompted many to believe that vertical search would be a strong revenue producer for niche publishers in B2B markets. For the most part, it hasn't worked out that way.

That's because Google, which is useful for all kinds of searches, has become a satisfying habit for most Web users, and habits are hard to break. Consequently, vertical search hasn't been able to get significant traction.

The prospects for niche social networking sites are limited for the same basic reason−viability starts with having a desirable audience, and that's a big challenge for any new kid on the block.

MySpace, Facebook and similar online social networks, which have already aggregated huge audiences, are habit-forming. And these large social network sites have likely beaten B2B publishers to the punch by providing mechanisms to allow their audiences to create niche networks within them. Combining these capabilities with their massive audiences, evolving technology platforms and growing economic power, these businesses have the capability of serving users better than most aspiring niche social networks.

I don't see how that is going to change, so the big guys are grabbing the audience and are very likely to retain it. Almost all of the niche businesses will end up being like parties that you don't want to go to because there won't be anyone interesting there when you arrive. And, no audience means no business.

Apparently, many in the media world agree with this point of view. AdMedia Partners conducted its 14th annual survey of nearly 1,600 senior executives at leading media companies in December 2007 to elicit their views on merger and acquisition activity among U.S. media companies in 2008. A substantial majority−69 percent of respondents−thought the perceived growth opportunity for social media networks was overhyped. In contrast, 72 percent thought the perceived growth opportunity for niche enthusiast online media (i.e., proprietary online content) was accurate.

Another problem for niche B2B social networking is that social media networks and user-generated content are very risky for advertisers who can't predict the nature of the content that forms the context for their ads.

Here is a do and a don't for those in B2B publishing who are considering launching a social networking site:

• Do consider creating an online social network if your audience is large−say, more than 100,000 people−and can benefit significantly from communication with peers.

• Don't assume that a social networking Web site takes minimal work. At the very least, it must be monitored and often seeded with content to create more postings.

Seth R. Alpert is a Managing Director of AdMedia Partners, an M&A firm serving digital and traditional media, marketing and information businesses.