Livewire: The Communications, Media and Entertainment Blog: Social Networking remains hot, but how do we make money?

Being seemingly impervious to the current financial climate of tight money, Venture Capital continues to pour into wireless social networking startups and while others are being snapped up in a new wave of consolidation. Recent funding announcements include money for the likes of Zannel for $10M, Pelago for $15M, Kyte for $21M and Jaxtr for $10M, just to a name a few. The largest consolidation announcements came from Vodafone acquiring ZYB for $50M and Nokia acquiring Plazes for an undisclosed sum. Is this an irrational trend? I think not. These startups are adding one more component to the social networking value chain while product companies, such as Nokia, are continuing to develop their own portfolio offering in hopes of cashing in on the vast potential value that social networking represents. For example, Nielsen Company just released numbers suggesting that social networking usage on mobile only just recently passed 1.6% penetration in the US and 1.7% penetration in Europe, a number that should only exponentially grow. Additionally there will be a continuing turf war with operators, platform providers and handset manufactures trying to win the consumer to claim value.

The big question then becomes, “what value is there to claim?” for all of this investment. On the web, the market is already littered with point solutions and promises of ad funded models that have not delivered to expectations. Sure, there is uplift from new data plans from the operator to support social networking, but subscription revenue remains elusive while data usage then starts to rapidly increase. To use an example from a fixed line ISP, Plusnet in the UK released numbers showing that YouTube was consuming 17% of peak hour usage on their network, yet YouTube is still not even a large money maker for Google. I feel it is a great user base that has not been converted into a “consumer base”.

The answer is the creation of end to end thematic social networking portals for the customer. The thematic portals provide not only interaction, but context for relevant commerce, potential subscription revenue for high value content and targeted advertising since the audience is self-qualified. In my opinion, this mix of revenue streams will hold the greatest chance for success. A uniform and consistent, multi-screen experience completes the offering by making it easy for the consumer to interact via the modality that suits them best. The offering cannot be just another community that provides little marginal value.

Thoughts?

Comments

Jeremy,

I think Service Providers are well placed to exploit social networking opportunities as they can add lot of value to social networking proposition.

Mobile providers can provide location data which can help create some really exciting applications. Service providers can also add identity management, behaviour tracking and customer information to this data. I think service providers need to think about social networking, leveraging some of their strengths to create differentiated propositions in an already crowded market.

Ankur Bhan

Commented by: Ankur Bhan | August 7, 2008 10:53 AM

Ankur,
You have definitely touched on some exciting areas. Your thoughts on adding capabilites such as identity and customer data will definitely add a richness to those applications. The trick will be to expose those capabilities is a manner that is non-intrusive to the end customer. I can't wait to see it evolve!

Commented by: Jeremy Kloubec | August 12, 2008 3:40 PM