Niche Social Networks - Where’s The Money?

There is a niche social network for almost every interest and/or demographic with numerous more on the way. While niche social networks usually have more revenue options then advertising only (if they’re smart), advertising will still be the dominant revenue source for many. This presents a problem. With a smaller target audience, how will social networks survive on advertising revenue?

Ad networks such as TribalFusion, Google Adsense, FastClick, etc. take anywhere from 40% - 70% of advertising revenues in addition to having low CPM’s to begin with. To give you an example, TribalFusion is known as one of the top 3 ad networks interms of the CPM’s they can give a publisher, and they still only average around $1CPM net to the publisher AT BEST (120 or 160 skyscraper). Google Adsense has mixed results, but in the case of social networks Google usually performs far less then $1 CPM.

I’m a firm believer that to substantially profit from advertising on the internet, a site needs to reach the level of traffic where it becomes cost efficient to sell advertising directly in-house. Selling in house allows you to control the CPM price and cuts out the middle man, which ultimately leads to much higher CPM’s.

By now you probably see the point I’m getting at. For a niche social network to reach large success they must reach a very high level of traffic where it becomes efficient to sell advertising in-house. Unfortunately, due to the much smaller target demographic this becomes near impossible. Its like a dog chasing his own tail.

But I still believe there is opportunity. Niche social networks with similar user demographics can merge under one umbrella. By combining the traffic numbers of two, three, four + niche social networks together, a company would finally have the leverage and efficiency to sell advertising in house. My prediction…larger media companies will emerge that own several or more niche social networking properties.

[tags]Social Networking, Social Network, Social Media, Online Community, Niche Social Networks, Brian Balfour[/tags]