Making money from Open Social Networks

Was reading Dave Winer's post on the portability of one's contact directories across multiple Social Networks:

4. There are enormous economic incentives for companies that run social networks to not let users of other networks access their services. Shareholder value is a function of how many users they have, how they are "monetized" and how hard it is to switch. The harder it is to switch, the more money each user is worth. Any exec that did anything to decrease the number of users they control would probably be fired. So anything that depends on this isn't very likely to happen, in existing networks.

Got thinking about this.....as we all know, the life of the average Social Network may be gay and delightful rather than nasty and brutish, but it is still short. We flit from one SocNet to another like social butterflies....or social bees maybe, we all seem to migrate to a new hive every few years, leaving the crumbling profiles our previous existences like so many broken, drying pupae (anyway, you get the picture)

So counting users is not valid - all those drying profile pupae count as users, but the butterflies have long gone, so caveat any emptors !

I have a theory - empirically based admittedly - that the half life of the average social butterfly is about 1 year - ie you will capture all their attention in year 1, 1/2 in year 2, 1/4 in year 3 etc etc. A corollary of this is that by the end of year 2 they are already flirting with new SocNets. Worse still, its the queen bees (to mix metabugs) that set flight first, followed by the drones and fanbees.

So what does this imply for the valuation of a SocNet - quite simply that there are very few years of sunshine to make hay with, and that must have a big impact on any NPV calculations.

When you therefore look at the proposed value of the Social Networks, and divide them by the number of current users, and make heroic assumptions about growth over 5 to 10 years, and calculate their monetisable value its probably hugely overstated because:

(i) There is no 10 years, no one major SocNet has lasted that long (I submit)
(ii) and maybe not too much left after 5 years once one factors in the half lives of those users

In other words real activity is probably more like a bell curve, which leaves a huge value gap (the area under the S graph vs under the bell). Granted one should use a high discount rate to reduce the value, buet even so.

However, if it were an open, portable system, and the people were flitting from Socnet to Socnet in the ecosystem building up their own Directories all the while, then value would be larger and more permanent because:

(i) Each user would have a larger directory (think about all the gaps in all the various contact directories you have on all your SocNets)
(ii) Less effort (attention) would be expended in the hard grapht of re-setting and maintenance, more in additive services - I would also hypothesize that because friction is lower, more services would be used more often
(iii) There is simply a bigger lump of value to be created (more of my years x more of my attention per year x more of us = more value)

This will come to pass, the 'Net wills it (to me Facebook, MySpace et al are like AOL, Prodigy etc in the Days Before Mosaic). Its clear that its better for users to have an open system eventually from the above analysis.

(Quiz - which quadrant to you prefer most in a 2x2 that has closed/open and your data/their data as its axes?)

And which quadrant are you in now?

The only issue is when - right now its very hard to create this world in situ, and thus the initial trend is towards closed systems.....as Dave concludes, open systems are likely to be built ground up, system by system. I sadly concur with him re Open ID as it is today, but would end with a thought towards Ning - Marc A.'s last revolutionary step was Mosaic, imagine what a service like Ning could be like if it too were totally open.