In the late 1990s, a large multi-national technology corporation, hoping to become a major force in online advertising, bought a small start-up in a sector that was believed to be the ‘next big thing’. That corporation was Microsoft and the start-up was Hotmail. Hotmail and Microsoft established web-based email as a must-have application for personal use. The addition of Hotmail to the Microsoft inventory promised to increase the companies online revenues that were being dominated by Yahoo!, Google and AOL amongst a host of others.

A decade later it was the turn of a much-evolved AOL to speculate with the purchase of a small and upcoming social networking website, Bebo, for $850m (£425m). This has raised a number of eyebrows since AOL has been a struggling web-portal after its merger with Time Warner, added to the fact that the real value of social networking has yet to be realised or understood.

Both deals in their respective decades offer to the casual observer a paradox of the Internet revolution. Whilst both email and social networking have the premise of being the next big thing which aides revenue generation, it is dangerous to assume that each service can standalone and generate revenue in its own right. Webmail, now over a decade old illustrates this perfectly. Microsoft, Yahoo!, Google and AOL all have their respective webmail services with advertisements stratefically placed to entice the user to click through, but these are a small part of the bigger networks. The offer of email, free archiving, address book and calendar is cheap to deliver, but its primary purpose is to keep the user engaged with the brand and its associated websites, making users more likely to visit the affiliated pages where advertising is more effective.

For instance, I am a fully signed up member of Google and access their email, chat, documents, analytics, webmasters, adsense, adwords, calendar and checkout applications, etc, some of which have advertising and all of which support the core Google search pages through branding. A similar example can also be said of Yahoo!. I again frequently use Yahoo!s MyBlogLog, Flickr and Upcoming services, which serve to re-inforce the Yahoo! brand and web portal.

Social networking will become a ubiquitous feature of online life, but that does not mean it is a business.

From whence came webmail now comes social networking. The implicit values of social networking services such as MySpace, Facebook and Bebo have been increased by the big internet and media companies such as News Corporation, with their purchase of MySpace for $580m (£290m) in 2005 and Microsoft’s $260m (£130m) investment for a 1.6% share in Facebook, in late 2007 (valuing it at an enormous $15bn/£7.5bn). But valuing these online services so highly does not mean that there is a valuable revenue model; Facebook’s revenue for 2007 was a mere $150m (£75m). Sergey Brin of Google also admitted that the monetisation of their Orkut service and social networking in general was proving to be problematic (they also have a contractual agreement with News Corporation to offer advertising on their MySpace service).

Facebook has also been met with criticism and difficulty when trying to monetise its service with a project called Beacon. Facebook’s idea was to inform users’ networks whenever an item was purchased therefore creating what is in effect a recommendation system, or algorithmic word-of-mouth. Users rebelled and privacy advocates shouted loudly, the service was axed and Mark Zuckerberg, Facebook’s founder, was left to apologise for an innovative idea badly implemented.

Whilst social networking does have oportunities to make money, it is unlikely that it will be pots and pots of money. The value of the service, however, is not monetary, but as its genre suggests, it is social. We have already seen how people can connect to past and present friends, but a social networkings strength is in its ability to forge new relationships, business or personal. Social networking has made explicit the connections between people, which has lead to a whole ecosystem of applications built on their APIs which allow users to interact.

But should users really have to visit a specific website to be social?

I often comment that there is something profoundly wrong when people are forced to spend their lives updating their profile to keep in touch with their so-called friends. What happened to the good-old-fashioned telephone? Why don’t people simply arrange to meet up and go for a drink to keep in touch? Of course, with everyone’s increasingly busy lives, it is possible to argue that posting a tweet via twitter, posting an article on a blog or updating your Facebook profile, allows you to continue a real relationship with your friends, whilst not actually needing to see them every Friday or Saturday night. This is a good thing, right?

Another problem presented by today’s social networks is that they are an enclosed ecosystem, at least to users. Whilst Facebook and LinkedIn, in addition to a whole host of others, have provided APIs for developers to encourage them to interact with their services (this has been particularly successful with Facebook) the same cannot be applied to users. The various social networks, until recently, have been reluctant to allow users to pass data between competing services, afterall, this data is core to the success, or indeed failure, of a site. This is understandable since the networks’ huge valuations depend on the sites maximising revenues and page views, so they need to maintain a tight control. As a result, keen Internet users maintain a plethora of online accounts.

2008 will see a change in how people access social networks.

The opening up of social networks, lead by Google with their Open Social API, is set to bring about an evolution in this medium. This change is following the historical standardisation of popular services. First it was email with webmail, which in the early days was restricted to individual ecosystems, for example AOL and CompuServe, then it was instant messaging, with individual services provided by Microsoft, Yahoo!, Google, AOL and Skype.

Further developments include the Data Portability Working Group, whose mission is to put all existing technologies and initiatives in context to create a reference design for end-to-end data portability. In short, allow users to move their data around competing services. Others are pushing OpenID; a plan to create a single, federated online sign-on system that people can use to access many websites.

The opening of social networks is likely to accelerate thanks to the first tentative, yet bold, steps made by webmail; the first social network. As a technology, webmail has become old fashioned, but its younger sybling, the social network will revitalise not only webmail, but online communication and advertising. Through social intelligence, marketers and advertisers will be able to target adverts for items that we are more likely to want. This will not only boost the users online experience, but provide a more targeted revenue stream.

The fight for social networking dominance has been running for several years now, but it shows no sign of letting up.

On the Web, a walled garden is an environment that controls the user’s access to Web content and services. In effect, the walled garden directs the user’s navigation within particular areas, to allow access to a selection of material, or prevent access to other material.

Recent history suggests that open standards will again better the “walled gardens” of the Web.

In 1994, when the previously obscure computer network, developed by the American Department of Defence, first become known to the general public as the “World Wide Web”, or simply The Web, many people first connected to it via AOL and CompuServe. These subscription-based service providers offered not only access to the Internet, but other services such as email, chatrooms, discussion boards and more. It was access to the Web via the Internet that would lead to the undermining of these services, and the opening up of the Web as a platform for individual and creative expression, revenue generation and social interactivity.

Whilst it took some time for the closed communities to venture out into the wilds of the Web, it brought about the standardisation of the services that made up the early web. For instance, POP and SMTP standardised email and as a result it has become the ubiquitous tool of business. Today, of the early pioneers of the Web, only AOL survives, but as an entirely different entity; a web portal supported by advertising.

History appears to be repeating itself. The biggest online phenomena of the past couple of years, the social-networking websites of Facebook and MySpace, are acting very much like the AOL of the mid-1990s. They are closed systems based upon prioprietory standards. You cannot easily move information from one system or another if you so choose. This ties users into one system, or forces them to create profiles on both. A similar comparison can be drawn with the virtual worlds of Second Life and Entropia Universe.

The Web is better when it’s social.

Part of the reason these websites are popular is because they are closed communities, where users can interact with friends and find new friends with which to interact. This community feel has been tested in recent times, with sites such as Facebook being criticised for using their user’s personal data to target advertising. It is innevitable, however, that these systems are proprietory; it is only once these systems immerge and become popular that standards can be developed and implemented.

Just as the Web’s open standards, embodied in the Netscape browser, displaced the online services providers, so the paradigm of open standards awaits the social networking and virtual worlds. Back in the 1990s it was Netscape, but in the 21st Century it falls to Google to defend the open standards of the Web with the Open Social API. Some say there is a large amount of self interest in this move, since Facebook and MySpace have huge communities, which both networks know a huge amount more about than Google and can hence generate billions of dollars of revenue.

The web is more interesting when you can build applications that easily interact with your friends and colleagues. But with the trend towards more social applications also comes a growing list of site-specific APIs that developers must learn. Open Social is an attempt not only to open up the closed communities and allow developers to interact with the different networks, but allow developers to only learn one API. MySpace has signed up to this initiative and, more reluctantly so has Facebook. A curiosity is AOLs recent aquisition of Bebo, another online community popular in Europe. Is AOL simply jumping on the “band-wagon”? Has it learnt its lessons of the past, or is it using knowledge of its past as a guiding principle? Whatever is the answer, Bebo’s inclusion in Open Social will help it continue its competition with other social networking websites.