Social networking turns profitable

Facebook, now with 300m users, announced last week that it has broken even. Its revenues cover operating costs. In internet language, one's "burnrate" is how much money you are losing monthly until you do just that - break even.

What is the business model of Facebook? Well, there is traditional and self-service advertising, virtual property and gift sales. With 300 users, is there room for anyone else?

Yes. That's why I've backed two entrepreneurs in the social networking services sector.

Facebook and other massive social networks like MySpace and LinkedIn are the new cities which have undergone a land grab since 2004. They provide the distribution for new online applications.    If you have an idea these days, you have to make it a Facebook "app" (application) - layer it on top of the online sprawl which is Facebook, and connect it in through the API (application programming interface), which is like the plug into the network or your connection point.

Inside each city is an opera house, a sports stadium, lots of lovely restaurants, and that's where the opportunities are for other social networks. Many will argue that the game is over, that Facebook has cleaned up. The need to stand out is greater than the need to fit in. We may want to have a window at Facebook, but it doesn't tell everything about us; for certain sides of our personality, or with certain circles in which we operate, we'll have other groupings.

So my latest investment out of the online Dragons' Den is Alexi Deak's venture - Family Fridge. I liked Alexi, and he  wants success. I remember from my childhood the family fridge was plastered with notices of this and that, photos, reminders etc. Naturally, that moved online. Family Fridge provides a way for families to get organised and tighten up the bonds that bind. And another one of Ariadne's portfolio companies, World Friends - a 2m user community where one can make new world friends - is coming to Europe from Asia.

No one has cracked the code on monetising a "new friends network". Facebook is used primarily to get back in touch with people, whereas World Friends allows users to find people with similar interests such as travel, cultures, or languages.

Francis Fukuyama wrote a book called Trust. Its simple thesis is that societies which have a spontaneous ability to trust informal social connections mature and develop faster. From that we can extrapolate that all of this connecting is "good for us" even if it takes time. Watch for applications which reduce the time spent connecting in social networks, while providing the organisational capabilities.

Julie Meyer is chief executive of Ariadne Capital.

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