December 29, 2007

Facebook still in the News

Facebook Still in the News

Facebook’s transformation from a quirky internet start-up into one of the most talked-about companies in Silicon Valley is sure to be remembered as one of 2007’s biggest technology stories.(Kevin Allison: FT December 28 2007)

In May 2007 Facebook announced that it would allow outside developers to develop applications for Facebook such as games and slide-shows for use in the site. This gained a very favourable response as Facebook has a large and growing market. As the Money Programme puts it below, however it asks searching questions which are related to to any media company either on or offline. How has it outstripped the opposition and will the audience remaion for as every media company knows audiences are fickle: 

Facebook seemed to come from nowhere to everywhere in 2007.

One person in eight in the UK has become a registered member.Why has Facebook been so successful against stiff competition from other social network sites?And as the company tries to turn its popularity into profits, will its millions of members stay faithful? (Facehooked BBC Money Programme)

Comscore an organisation which tracks webtraffic estimed that Facebook received over 92 million unique visitors in November 2007.  This compares with 104 million unique visitors for MySpace in the same period which is a far more established company. The rate of growth for Facebook since November 2006 has been an impressive 400% compared to MySpace's 26%. Whilst an impressive rate of growth from a relatively low base is easier to achieve in a short time clearly if these figures were to continue Rupert Murdoch's MySpace as  the foremost social networking site is under threat.

Business interst in Facebook is underpinning this growth and gaining widespread interst amongst the business community. Given that Facebook's audience is amongst university students soon to be embarking upon successful careers the potential for longer term audience retention and the possible growth in advertising revenues can hardly be ignored. As reported in a previous posting Microsoft made an initial investment buying up 1.6% of the company. This was closely followed by Li Kashing a Hong Kong businessman of $60 million.



Comscore Chart

Above Comscore chart of Facebook usage pattern from Aug 05 - Aug 06. Unsurprisingly for a site devoted to university students usage goes down in the holidays. Roll on more wireless internet laptops under the sun umbrellas!



Overall these deals value Facebook at $15 billion. This can be compared to the price Google paid for YouTube of around $1.65 billion overall. In general terms then social networking sites with an established audience are becoming increasingly valuable. These figures also help to put the value of Linden Labs Second Life in perspective. currently the number of residents of about 11 million with aroud 38,000 online at any one time is still not attracting the bigger players. Microsoft is clearly intersted in audiences numbering tens of millions. 

Allison analyses the three constituent groups who comprise the audience and instituional combination which defines the media equation of the site but who have competing desires:

  • The users whose social connections power the site
  • The developers whose applicationskeep people interested
  • The advertisers upon whom Facebook is reliant for making money
“Facebook has these three constituent groups and it’s a really difficult balancing act, especially when you are trying to be innovative,” says Jeremiah Owyang, an analyst at Forrester Research (Cited Allison ibid)

Two groups have been frustrated over the past year. Users have become concerned over privacy issues - to be dealt with later- whilst  software developers have found the frequent changes to the site's software through tweaking awkward to deal with requiring immediate tweaks of their own. Currently the situation is very fluid as the key perspective from the viewpoint of Media institutions is how to monetise the assetts of social networking:

“We are in an early stage in trying to monetise social media,” says Jeremy Liew of Lightspeed Venture Partners, a venture capital group that is an investor in RockYou, one of the leading makers of Facebook applications. Speaking of Facebook’s trouble with Beacon, Mr Liew says, “there are bound to be mistakes made” as social networks experiment with new advertising models.(Allison ibid)

Social Networking and Advertising Futures

Liew is confident that in the medium term a stable model of advertising driven social networking sites will emerge and that looking between 5 or 10 years this will have happened however over the coming few months there is still likely to be a lot of experimentation. Unlike audiences who may be preparedto put up with a few issues if they are changed rapidly in response to audience feedback marketers who are putting the money up front are unlikely to be so tolerant.

What does seem certain is that social networking is going to become a massive creator of adertising revenue. The content will be user generated but oiled by useful and entertaining applications. Rupert Murdoch renowned for being media-savvy and being able to develop and influence trends was certainly perceptive to invest in MySpace. The fact that Microsoft has made a move into this niche market after years of experience in networking with MSN shows that this is likely to be the fastest growing area of advertising revenue in the coming years. As Gabriel
Ready from the Open University has commented there is no such thing as a free web-trip or (lunch in cyberspace):

As Facebook founder Mark Zuckerberg explained, quite simply, these sites are based on a business model of selling targeted advertisements. Targeted advertisements, unlike traditional broadcast adverts, rely on information about their targets. And we--the users--are the targets. It's inevitable that companies like Facebook will want to gather more and more information about us as users, because it is that rich mine of data about us that advertisers are willing to pay for. (My emphasis, Ready: OU Open2.Net)

Webliography 

Facebook set for a delicate balancing act


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