Investigate emerging IT technologies: Social Networks appear to be all the rage at the moment.
Psychology is classically defined as “… The science of behavior …”, which in the case of human beings manifests itself when others are present, thus representing behavioral instances in social interaction (Kenny, 1996). The phenomenon of socialization and networking have been extended by the global presence of the Internet whereby individuals through specific social networking websites have access to a broad context of toher individuals that is further defined by the type of website which have differing population, age and constituency compositions (Freeman, 2004, pp. 10- 29). The internet through emails, instant messaging, online dating and blogging has created a relatively secure means for people to engage in socialized behavior while being able to feel relatively safe in terms of personality differences and other areas that might not be the case in situations whereby they are exposed to individuals on a direct basis with whom they might not have common interest areas and or outlooks (Ethier, 2004).
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All of the preceding factors are components that have given rise to the dramatic increase and popularity in online social network services. Classmates.com, which was started in 1995, represented the first social network website, which was followed by Company of Friends that was the online network of the magazine Fast Company in 1997 that began the era of business networking (FastCompany.com, 2004). The promise of privacy, like-minded interests, and being able to socialize saw online social networking become extremely popular in 2002 and increase to the point where presently there are over 200 of these types of web sites globally (RateItAll.com, 2007). And as it is with any type of activity that attracts large numbers of people, social networking is big business. As a result the Internet has and is offering firms in this sphere an advantage in bringing together distinct profiles of individuals with marketing potential beyond any fees or charges to the members (Robson, 1996, pp. 250-260). However, that business segment, social networking, is increasing taking on the look of the dot-com frenzy that gripped in Internet in 2001 (Madslien, 2005). As was the question then, looms as the same questions now regarding online social networking. What are their business models? What type of revenue are they generating? What is their profitability? What are their differences and will the phenomenon last? These factors are areas that will be explored herein.
Online social networks are forums whereby people can meet new individuals, network and initiate or maintain contact with old acquaintances through the relative privacy of the Internet, thus enabling business or socially minded people to enlarge their spheres through providing and exchanging information on themselves (Epic.org, 2006). Facebook (2007) is system comprised of a number of networks, with each one based around a region, or company, high school and or college that permits its users to share information on themselves that allows a broad category of differing types and demographics of people to use their social networks as opposed to offering contacts that are geared to a specific type of profile. Thus it provides a more diverse population and appeal to advertisers implementing this type of expanded user profile. The differing networks within Facebook are independent as well as being closed off to users that are non-affiliated thereby providing control over the content to specific group profiles. It, Facebook, is an English language web site that enjoys popularity among college students as its largest profile group, numbering in excess of 17 million, or roughly 85% of all U.S. college students (Arrington, 2006). Facebook is free for users, utilizing advertising, banner ads and sponsored groups for revenues that are estimated to be in the area of $53,000,000 annually (Arrington, 2006).
Another type of social networking web site is LinkedIn, which is business oriented, primarily established to enable professional networking (Dragan, 2004). The company’s 40,000 member list includes such high profile individuals as company vice presidents, over 700, Chief Executive Officers, over 500, and 140 Chief Treasury Officers (Dragan, 2004). Not yet generating a profit, LinkedIn, charges a fee regarding its basic service and charges what it terms as ‘power users’ representing executive recruiters, investment professionals and sales representatives who use the service to tap into its network an additional charge (Liedtke, 2004). Many members utilized their personal contacts and associates to find, fill jobs and to increase their sales, thus offering a very high select user profile that also generates income from advertisers, however, the business model has yet to prove profitable (Liedtke, 2004). Founded in 2003, it has become a sort of ‘in’ place for professionals increasingly identifying its members as being in a special group of movers and shakers, as it is termed (Copeland, 2006). At present, LinkedIn has existed on venture capital funding representing almost $15 million USD from investors such as Sequoia Capital along with Greylock, with the company’s business model based upon advertising revenue and fees projected to generate $100 million in revenues by the year 2008 (Copeland, 2006). The goal is to increase the web site’s membership making it the number one professional resource for business and networking, job referrals, references, experts and whatever else is needed for professionals (Copeland, 2006).
The younger generation of teens and those in their early twenties tend to use hi5, which has over 40 million members in the pattern of a MySpace social network (Mashable.com, 2006). The massive traffic the web site generates makes it the eighth most visited social network web site in the United States, but is losing market share in the face of rival companies such as Facebook, Bebo, Piczo, Tagworld, Multiply and others that also covet this user group, with MySpace as the dominant performer, stealing market share from all these rivals (Mashable.com, 2006). In keeping with the general social network format, hi5 offers profile pages with basic services offered for free and the site, like others, generating revenues from advertising, banner ads and referrals to music and other web sites such as iTunes for music downloads. The mode of this social network allows users to connect to their friends, build and introduce themselves to new ones as well as invite their own (hi5.com, 2007). Still in the venture capital backed stage, hi5 does not provide information on its revenues or related data. Bebo (2007), as is the case with social networking sites geared at the younger generation, offers users the ability to post their pictures, write blogs and of course send messages. A relative newcomer, 2005, Bebo like hi5, Facebook, Tagworld, Multiply and other allows users to post their talents on their personal pages on a special “New Music Only on Bebo” section (Bebo, 2007).
Any discussion of online social networks must of course include MySpace, the largest web site of its kind, achieving almost 80% of online visits in this category (Answers.com, 2007a). With over 125 million users the site is targeted at the teenage and under thirty crowd that in typical fashion, allows users to create their own personal profile pages that can be enhanced with HTML code to make them into multimedia pages (Answers.com, 2007a). This aspect allows users to post special aspects on themselves, such as their talents, videos, music and paintings, with its success being proven by its purchase by News Corporation for in excess of 500 million USD (Answers.com, 2007a). MySpace business model of advertising revenues, banners and fees has achieved success as a result of size, the determining factor in Internet related businesses.
Friends United in the UK represents a combination of all of the other online social networking sites discussed. It encourages friends, family and individuals to connect for reunions, communication, genealogy, socializing, dating and like LinkedIn it offers job searches and job hunting (Friends Reunited, 2007). And in going one better than its American counterparts, the site offers television broadcasts via the company’s parent company ITV network as well as the popular format of music CD collections. All of these facets are revenue generators that users can access free (Answers.com, 2007b). With 15 million members, Friends United has access to almost half of all UK households with Internet service and was founded on the idea of the owners, Steve and Julie Pankhurst, who were looking for old classmates and found a lost friend of 30 years (Answers.com, 2007b). The success of the multiple interest web site, combining all of the features found in the highly successful U.S. social networks, and with its own fresh new wrinkles such as television broadcasts, resulted from the purchase of the company from the Pankhursts by ITV in December of 2005 for £120,000,000.
As would be expected, online social networks have become a global phenomenon that has taken off particularly in the Asian region. Japan’s top social networking site ‘Mixi’ is a highly organized, in Japanese fashion, web site that is a kind of MySpace knock off in the Japanese language, utilizing the same advertising, banner ad, music referral business model (Kageyama, 2007). The cultural nuance is apparent in that “MySpace is about me, me, me and look at me …”, whereas “ … Mixi, is not all about me. It’s all about us” reflecting the more reserved nature of the Japanese culture (Kageyama, 2007). Social networks of the non online variety have long been a fixture of Asian societies, and in Korea CyWorld has grown to the point where it is launching a U.S. version with an initial investment of $10 million USD and a pledge to spend whatever it takes to be successful. (Kirkpatrick, 2006). With versions in Japan as well as China and Taiwan, CyWorld is an example of the universal nature of the social networking business model. The formulas utilized globally are basically the same, free access, bring in large numbers of people, charge advertisers, and diversify the revenue stream through music, television access, movie CD’s and other sources.
As was and is the case in the United States as represented by MySpace, market share and dominance determine value, to advertisers, investors and buyers. Friends United is the largest social networking site in the UK and commanded the same interest on the part of a large corporation that MySpace did in the U.S. Success translates as having a commanding percentage of a nation’s user profile, which aids in the web site being able to attract better and more advertisers at increased rates, along with banner ads, music web site referrals and other revenue streams. The venture capital backed nature of the online social network sites makes access to their profitability elusive, with all but the most popular sites, as indicated having been either acquired by large corporations, MySpace – Friends Reunited for example, or having an expansive nature, CyWorld and MySpace, indicating that revenues and profits must be adequate if not substantial. As eBay and Yahoo have proven, market dominance does translate into revenues, but there is a lag time that takes well heeled investors or corporations to underwrite.
And the stakes have made the game hotter as more entrants as well as current players up the ante (Hicks, 2004). But, that is not all bad news as “… not all online social networks are the same …” (Jacobs, 2006). And while the differences in demographics, profiles, appeal and niche are similar, the tremendous online numbers allow for the distinctions (Jacobs, 2006). And as is the case with dominant sized competitors, they have the clout to slowly dip into their smaller competitors, thus increasing their size advantage, or accomplishing the same through acquisition. And this brings up the other side of the coin, with most of the online social network sites funded by venture capitalists who are in it for the sell off to another company, and or stock play, is the phenomenon one that is ready to burst (seomoz.org, 2006). MySpace has yet to prove its $580 million investment by Rupert Murdoch’s News Corporation despite its size, and the venture capital market, which has pumped more that $824 million into the sector since 2001 is still awaiting returns on most of that money (Rosmarin, 2006). But, with MySpace and Friends Reunited pulling in almost half of their respective countries Internet access subscribers, the potential for huge profits represents a bet that most companies have opted not to miss out on. Privately held Facebook’s recent rejection of a $750 million offer is a demonstration of this point (Rosenbush, 2006). The jury and the results are still out as the industry grows and some consolidation occurs, then the real story will reveal itself in terms of profitability as well as staying power.
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