Bo Peabody, the founder of Tripod (remember Tripod? I have an homage to it up there) and now a VC at Village Ventures (no, never heard of it either), wrote an op-ed in the Washington Post to say that social networks like Facebook and Twitter aren’t, and will never be profitable, that the advertising and freemium business models don’t work for social networks, and that it would be best to run social networks as non-profits, a la Wikipedia, rather than businesses, because it’s in the nature of social networks that they fail.
I’m all for contrarianism, but — leaving aside for a moment that the guys who started Facebook and Twitter probably wouldn’t have started them in the first place without the profit motive — Peabody’s argument would probably sound better if he hadn’t written this now.
Peabody writes that News Corp and AOL screwed up by acquiring MySpace and Bebo respectively; while AOL clearly overpaid (yes, technology is the only sector where boneheaded managers make stupid acquisitions), MySpace would’ve probably hit $1 billion in revenues in the year after it was acquired if it hadn’t been for the financial crisis, and kept growing like wildfire if the management at FOX Interactive hadn’t frozen product development while Facebook ate their lunch, stuck a finger in every pie, and generally made a mess of things. But more than all of that, what complicates Peabody’s thesis is that the two companies he holds up as exemplars of the impossibility to make social networking profitable, Facebook and Twitter, are… profitable.
Facebook has been profitable since last September and its revenues are growing rapidly. Twitter is now also profitable thanks to its licensing of its real-time search firehose to Google and Microsoft, and has left most other revenue sources untapped by choice, not inability. Saying that social networks can’t be profitable, and using Facebook and Twitter as examples of that, right after those two companies become profitable, probably isn’t the best way to make yourself look smart.