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The buying and selling of social networks

Elemental Communications (Social Media Portal) - 06 November 2006

The buying and selling of social networks

As the acquisition battle in the social network sector heats up, Rachel Hawkes, account director at Elemental Communications, casts an eye over some of the key moves

Social networking sites, in their many differing shapes and forms are ‘cool’ because they empower the user.  In some cases, user’s feel free to be themselves, the self that they may not feel empowered to be in the “offline” world and others are empowered by the feeling of being part of something, something big – and there in lays the massive attraction to such sites, and the reason why people are quite literally flocking in their millions to upload and share their lives with the world.

With over a third of young adults contributing to a social network in one way or another, and over half of the same age group visiting a social networking site on a weekly basis the potential for gathering so many in one place is irrefutably unrivalled.  But it’s not only attracting the 16-24’s, according to Neilson Net Ratings, a third of YouTube’s audience are over 45 and MySpace boasts more than 30 percent of their users are are between 35 and 49 and 27 percent are over 45..  And here in lays the dilemma for brands, most of whom are pondering the question “should we or shouldn’t we get involved,” and rightly so.  It should come with a big red warning, like the box of fragiles you entrust with Royal Mail to ship safely to a loved one “Warning.  Fragile.  Handle with care,” blazoned on every side.Photograph, Rachel Hawkes, account director, Elemental 

But it doesn’t, and in the world of social networks, what is popular today (a Blog, a site, a video and so on) may not be tomorrow, it can be compared (albeit somewhat loosely) to the hottest bar or club in town – it only remains popular so long as the cool people hang out there.  So any brand wanting to get involved in social networking, must do so thoughtfully and with total respect for the audience.  It’s about being involved, there is massive, massive potential here for brands, but they must understand that control is now more in the hands of the audience and many sites thrive because they work where advertising is not so prevalent.

The social network audiences are by their very nature, advertising sensitive and the most popular social networking sites have catered to this fancy.  They almost cocoon the user away from content that they don’t want to see and engage with – to do anything else is send their users scurrying for the next up and coming site (and there are plenty of them!).  So, why are these sites such attractive purchases?  Put simply, for their user base.  Are these sites (I’m talking about the established and popular, not the up and coming start ups) really worth that kind of money?  Hardly, but unlimited access to their audience most certainly is.  Yes, the audience is fickle, there is no long-term proof of monetisation or stability and if handled wrongly, the audience could up and move out at the blink of an eye – but as said above, nowhere else in the world can you gather such a diverse group of people in anywhere close to these sorts of numbers.

Traditional and non-traditional media companies alike have realised that to continue to be serious players next year and beyond they must invest in social networking, or as it is also called, ‘Me Media’.  One of the firsts to “cash in” was MySpace in 2005, which sold for what seemed at the time to be the incredible sum of $580 million, bought by News Corporation.  We’ve also seen Yahoo! buy flickr and for a reported $70 million, Viacom buy a group of sites, including Neopets for a collective figure of $160 million and NBC buying iVillage for $600 million.  Then the one that’s still on everyone’s lips – Google buying YouTube for $1.65 BILLION (and I think that figure warrants the use of caps).

Then there’s Yahoo! eyeing off Facebook (for a reported one billion dollar sum) and Viacom looking up Bebo’s dress… and the hundreds of new and emerging social network sites that are really too late for the party, but looking to make a quick sale from a search engine, media company or simialr that is in a rush to buy the next best site.

If these media companies are too rash to monetise their new social networking ‘investments’, and make too many changes that don’t gel well with the audience then they will soon find themselves without them.  Take Facebook for example, although it is still owned by its makers, they rashly decided to implement a whole host of new features to make it a more appealing prospect for any potential purchaser.  The Facebook community rebelled, and Facebook’s young owners were left red face with egg on their face.  It almost scared off Yahoo! and probably would have, had Google not have purchased YouTube, which put the pressure on Yahoo! to hurry up and make their own acquisition.  Because of this sense of urgency they may be cornered into paying more for Facebook than it’s worth.

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