Let's dial back the history machine to the grand year of 2000.  AOL is the 800 pound gorilla in the room and merges with Time Warner.  It is seen by a large percentage of people online as the DE FACTO INTERNET.

This is near the height of its dominance, plus or minus.  From there the rapid acceptance of broadband connections, which circumvented AOL's revenue stream which relied on telephone modem connections, and the growing education of the average user that AOL was in fact not the de facto internet led to its rapid fall.

By 2007 the total value of AOL stock had plummeted from $226 Billion down to $20 Billion and its subscriber base had shrunk by two thirds from 30 million down to 10 million.

Are we seeing a reflection of that same scenario taking place in the Social Network space?

The Market is Changing

Generation MySpace is getting fed up

Have social network sites peaked?  Are we seeing similar superior substitutes available to consumers? Are there consumer learning effects taking place? 

MySpace, the largest social network, has slipped from a peak of 72 million users in October to 68.9 million in December, ComScore says.

In short is the market changing faster than the social networking sites can react?

MySpace, started 1999 and sold in 2005 for $580 million has a similar lifespan as AOL at the time of its merger with Time Warner.  It was bought at what may become its near height.

It is seen as the DE FACTO method of creating a social network on the internet.  If you want to connect with your "friends" you set up a page on MySpace and away you go.

What happens when people realize there are alternatives that in many ways are superior.  What if you can connect with your friends using tools that are not attached to a single social network platform?  What happens after you have educated your user base to a certain level?

Superior Value: Wordpress.com - here you can set up a blog in a matter of minutes.  It comes with many of the same tools as MySpace but with potentially a more distributed experience and a much lower annoyance level.

Setting up your own social network: MyBlogLog - with this tool you can establish a network of friends out in the ether without joining a Social Network Platform.

These are only two examples of a wide variety of substitutes both in a personal site platform and a social networking tool.  Why limit yourself to one, make several.

Ads are a) not paying well or b) making users leave.

So this is a constant in the online ad realm.  You want to make your ad all "Pink and Flashing" without making your ad actually "Pink" or "Flashing".

The Social networking sites have very poor CTR (click through rates).  To increase the CTR they are making the ads more "Pink and Flashing".  And their users hate it and are leaving.

What's the fix?

I don't know if there is one.

With the availability of substitutes that can satisfy users needs without the drawbacks associated with remaining inside Social Network Platforms the only remaining barrier becomes switching costs.  At some point those switching costs will be judged by the user to be lower than the annoyance of remaining.

*Here is a switching cost reducer: MySpace Friend List Export - Code now available

Essentially, why should you stay if you can improve your experience and bring all your friends along?

Come back in 2 years and we'll review.