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One reason that some social networks are worth so much money is the potential for them to produce insights using all their member behavior that can be sold or used to make optimal decisions.  For example, this article talks about a small online dating website that uses a mathematical formula to help people optimize their profile to get more dates.  Among the insights the company finds is that men shouldn't look directly into the camera in their profile pictures, and women shouldn't highlight their body in their photos.  Why is this sort of data so valuable?  Because the data gets better over time as the sample size grows, and by definition the company that produces the data is the only one who can offer it.  Of course, this is all predicated on the data being able to deliver actionable information to people.  So when Facebook provides its data to an advertiser, it can make tons of money because it's giving the advertiser a great reason to buy more ads at a higher price from Facebook.  It remains to be seen how compelling other social networks like this dating website will be.

Will Marlow co-founded AlumniFidelity to help his clients reposition their fundraising to benefit from Web 2.0 technology and marketing techniques. He’s working with clients such as UVA, the College of William & Mary, the University of Oklahoma, Bowling Green State University, Randolph Macon College, and he loves nothing better than a thorny marketing challenge.  Read more about Will Marlow here, or email him at will@alumnifidelity.com.