Benefiting from new Internet technologies and altered user behavior, social networking sites have become the poster child of a series of new web services that have been emerging with the advent of “Web 2.0”. In this article, we follow a comparative case approach of two major German social networking sites—StayFriends and XING— in order to answer the question of how social networking sites create value for their users and how they can capture it. By transferring Chris Anderson’s concept of “The Long Tail” to internet-based social networks, we develop a novel perspective on the value creation of these new types of businesses. In particular, we examine how social networking sites can generate revenues through advertising, subscription, and transaction models. In addition, we identify the number of users, their willingness to pay, and their trust in peers and the platform as the key value drivers. Finally, we discuss managerial implications, providing examples from our case studies and recommendations for leveraging the value created through these services.
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