Social blog firms still looking for jackpot

This month’s deal between LiveJournal and a Moscow-based online media company, SUP, suggests blogging and social networking sites are the hottest thing on the Russian-language portion of the Internet. But it may be a while before they start churning a pro

Although SUP has not disclosed how it much it paid for the grandparent of online networking, LiveJournal.com, analysts estimate the deal to be worth $US 60-80 million.

But that’s only a fraction of the $US 240 million Microsoft dished out for a 2% percent stake in Facebook, valuing the site at a whopping $US 15 billion.

The valuation of Russian online networks has skyrocketed in anticipation of upcoming deals, but analysts warn against getting over excited.

“These sites are money-losing enterprises. They generate some revenue, but it’s not even enough to cover the costs of operating them, not to mention justifying their valuations of hundreds of millions of dollars,” warns Aleksey Basov, the Head of Begun company.

For now, investors may be head over heels for networking sites such as Odnoklassniki.ru, but experts say none of them is going to make money any time soon.

Advertising spending on social networking sites is expected to hit $US1.6 billion in 2008, according to a digital marketing firm eMarketer.

But Brad Fitzpatrick, the mastermind behind LiveJournal, says that while behaviour-targeting, highly personalised ads may be attractive for advertisers, they are likely to spook the bloggers.

“They started with the real advertising and then they realised they were growing fast and any more money means more advertising. This can help them financially in the short term but may hurt them in the long term because now people disagree and do not want to join,” said LiveJournal.com founder Brad Fitzpatrick.

Still there is hope for online social networks.

“At some point, people will figure out an effective business model for blogging and networking sites. The same thing happened with search engines. They searched for a way to make money, and just a few years ago they finally figured out that it is context advertising,” added Aleksey Basov.

While it might be impressive that Odnoklassniki’s membership has doubled to almost 7 million users in the last 3 months, it is yet to find a way cash in on its mushrooming Internet traffic.