This week O’Reilly Media is sponsoring the Graphing Social Patterns West (GSP West) conference in sunny San Diego, CA. Many leading application developers and minds are present discussing the future of social media as we know it. What follows is an excerpt from a proposal I developed for a potential client recently. I fell it brings value to the social networking community. It serves as an introductory piece in a series of posts for traditional media who have not yet grasped social networking for lead generation.

Leveraging the users social graph has grown increasingly more difficult in the last few months as providers such as Facebook lock down their social graph. Days of early growth fueled by numerous friend invites, notifications, newsfeed and messaging components has been replaced with systems of quotas and restrictions on use. Additionally, users are now more sensitive to the behavior of applications and quickly discard the apps they deem annoying or spammy. Not yet launched platforms from MySpace and Orkut have yet to implement these types of restrictions, but they have already received a bit of blogger attention for a platform thatʼs still in development. Given a little more time, more and more folks will be complaining and something will be done.

What this means for a content provider, seeking new audience through social media, is that growth must be fueled by highly engaging content and/or functionality. That’s right, just like traditional media - you can’t provide lip service. Applications now destined for failure include vanilla RSS feeds of site content, newsletter signups, subscription ploys and 1 time survey style quizzes that put a warm fuzzy icon on your profile. The limited engagement of one to many fails. Instead, engagement of new audience must include something for the user that makes them feel good about themselves and allows them to express themselves digitally, with their friends, in a way that no other application is already doing.

Users of social networking applications have a very low attention span and applications are competing in a more and more hostile environment each day. Applications are having to diversify their offering beyond the core application to retain users and increase traffic. Applications like Free Gifts have begun virtual economies leveraging game play, ultimately designed to increase time spent within the application, and rewarding users with special virtual gift incentives.

Revenue models that seem to have some success include pay per click ads and sponsored partnerships. Realistically, very few apps are able to sustain the technology costs, let alone development costs, with Google ads alone. There’s still a huge untapped market here for those who are willing to brave it. A few specific advertising networks have grown up to fill this space and offer CPM rates roughly double Googleʼs, but they are fueled primarily by other applications and not external advertisers seeking new audience. Likely due to poor performance of advertisements on social networks at large. Applications for existing media should be considered marketing expenses and not thought of as revenue streams (at least not initially).

Competition between friends (or even beyond immediate contacts to the network in Facebook or entire user-base elsewhere) definitely does very well with the Facebook / MySpace audiences. Applications such as Likeness show this daily. Additionally, leveraging user established in a recommendation style format is also highly effective. If your considering this type of application, be aware that there is a lot of competition in this area and micro-niche audiences on Facebook or MySpace are still too small to be sustaining.

Rewards based behavior works - however - there is a very short life span for actions that force virility based on user actions - that’s called SPAM. Meeting new people based on shared interests within a network will really enhance a users adoption and ultimately interaction with the application rewarding this behavior will enhance a products utility. Rewarding the users for daily and weekly interaction with desirable rewards will push the application much further along.

So the ultimate question then, how to promote a business on Facebook and other social networks? I’ll follow up with a post on that in the near future.