Communities cost much, but score low!

AOL became the latest Internet player to bet big on social networking, agreeing to put down a whopping $850 million for But turning Bebo’s impressive online and mobile traffic into dollars could be a challenge, but also possible.

While MySpace and Facebook have drawn headlines, Bebo has quietly gained impressive traction, claiming more than 40 million users worldwide. And the company has built a notable following in mobile, ranking fourth among social networking sites in the United Kingdom with nearly 350,000 wireless users, according to M:Metrics.

AOL’s buyout may not have had huge impact given the kind of cash that is floating around in the social networking waters lately. It was of course News Corp. that started in 2005, acquiring Intermix Media (which owned 53% of MySpace as well as other sites) for $580 million in cash. Microsoft Corp. followed in 2007 and spent the nice sum of $240 million for a “just” 1.6% stake in Facebook in a deal that valued the site at an unreal $15 billion. Holy mama!

But while some of the social communities have scored amazing deals from big-spending companies, it’s still unclear just how successfully they’ve cashed in on their audiences. The holy master of online advertising Google is discovering just how challenging the space is. The company will pay at least $900 million to MySpace through 2010 under the terms of an advertising tie-up, but Google in January surprised industry watchers when its CFO George Reyes conceded MySpace, Orkut and other sites were “not monetizing as well as we would like.

A Parks Associates study from October confirms the delicate balance such sites must strike, indicating 72% of social networking users would object to a monthly fee of just $2, and 40% would stop using a site if it contained “too many” advertisements.

And the online challenges are likely to become bigger and bigger as social networking continues to expand into mobile. Wireless publishers are already up to their ears in unsold inventory, and consumers are less accepting of ads on their phones than on computers. Drawing traffic to mobile social networking destinations is difficult enough. Converting those users into cash may be more challenging than anyone realized.

Published by Reinout te Brake

Reinout is a games investor and strategic business consultant specializing in the games industry. Reinout established his credentials through his own successful investments, start-ups, consulting and (advisory) board positions that led through time to strong bonds with key stakeholders in this fast paced industry. He is known for his outstanding results in the gaming industry. He has worked with many game studios around the globe and is therefore well known in the international gaming industry. Check out his games podcast;

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