Rabu, 26 Desember 2007

Social Networking Has Taken Off With Users, Investors Swelling (Investor's Business Daily)

After a career as a Hollywood executive, then a writer and editor for various publications, Romi Lassally left it all behind this past year to launch a social networking site.

Now founder and CEO of TrueMediaLLC.com, Lassally, 44, runs five sites where people go to secretly post confessions on subjects ranging from parenthood and military life to ecology. Shes pulled in about $100,000 in ad revenue since the first site launched in April.

"Its been exhilarating, terrifying and painful," Lassally said. "My mistakes are expensive, but they are also valuable."

Lassally is participating in the hottest trend on the Web since Google put search engines on the map. In just a few years, thousands of social networking and social forum Web sites have emerged. People visit them to meet others with similar interests, develop relationships, share information and stay in touch.

What many deemed a fad when the first sites appeared in 2000 has evolved into a big business that is changing the way hundreds of millions of people communicate.

"The size of it and the impact on consumer behavior has been remarkable," said Dennis Miller, general partner at venture capital firm Spark Capital.

Interest soared when News Corp. (NYSE:NWS - News) bought MySpace for $580 million in 2005, when the social networking trend was just an infant. But the child became a beast when Microsoft (NasdaqGS:MSFT - News) put a head-spinning $15 billion valuation on Facebook by paying $240 million for a 1.6% stake. Other tech giants in the game include Google (NasdaqGS:GOOG - News), Walt Disney (NYSE:DIS - News) Co. and Cisco (NasdaqGS:CSCO - News), which bought two social networking sites in the past year.

Research firm eMarketer says 37% of U.S. adults and 70% of teens use social networking sites. It projects that will rise to 50% of adults by 2011.

Networking sites also are starting to bring in more revenue. Ad spending on the sites will top $1.2 billion this year and reach $2.2 billion in 2008, eMarketer forecasts.

By one count, more than 6,500 social networking sites are active.

Hundreds of millions in venture dollars have flooded into promising upstarts over the past two years. With billions of dollars in advertising transitioning from TV to the Web, these sites will be reaching for a slice of that ever-growing pie.

"The ad budgets that are moving from TV to online are shifting so much faster than they were three years ago," said David Stern, partner at venture capital firm Clearstone Ventures. And the social networking fever is intense among the 18-to-34 age group that advertisers crave, he said.

The market also is international and moving onto mobile platforms.

"Social networking is growing rapidly at the same time there is a massive migration of people going from the TV to other screens," from the PC and laptop to handsets, said Stern.

There has yet to be an eye-catching initial public offering of a social networking site, but observers say Facebook likely will be the first.

"Facebook is the it girl currently," Miller said. "Any time you are able to aggregate the massive audience they have while seeing the media frenzy over Facebook and MySpace, clearly something is afoot."

Facebook claims to have 60 million active users, No. 2 to MySpace.

Networking Globally

According to Nielsen/NetRatings, more than 145 million people worldwide logged on to at least one of the 20 most-visited social networking sites in November. But there could in fact be many more people logging into various social networking sites.

"A number of indigenous sites are popping up in various geographic regions," Miller said. Lots of well-established Web sites are adding social networking features, he says, including Wal-Mart (NYSE:WMT - News) and Circuit City (NYSE:CC - News).

"Social networking now manifests itself in every pitch were getting, from infrastructure players to mobile," said Miller. "Were in the midst of a frothy hyperbole moment."

Ning, a Web site people use to build their own social networking sites, lists 6,594 clients. Nings founder is Marc Andreessen, co-founder of Web browser pioneer Netscape.

In July, Ning received $44 million in a third round of funding, led by hedge fund Legg Mason.

Another social networking player, Kyte, received a $15 million second round of funding this month. Investors include Spains largest telecom operator, Telefonica (NYSE:TEF - News), cell phone leader Nokia (NYSE:NOK - News), Japan-based telecom operator NTT DoCoMo (NYSE:DCM - News) and Swiss telecom operator Swisscom.

Kyte is a Web-based provider of services people use for taking personalized content such as pictures and video that can be linked to My- Space, Facebook and other sites. Its main focus is moving that content to mobile devices.

Going Mobile, Too

Thats why Kyte welcomed telecom investors, said CEO Daniel Graf.

"Getting distribution in the mobile space has a high barrier to entry. They are the gatekeepers," he said. "We want them as strategic investors in order to build an international syndicate."

Getting social applications onto mobile phones has only recently taken flight. New phones by Nokia have a Facebook application built in. For any social networking site to really make it big, analysts say, it will need to be global and mobile.

But with every potential for reward comes risk.

Facebook caused a minirevolt with the recent launch of Beacon, an ad model intended to closely profile its users so advertising could be more narrowly targeted. The effort was pulled and sent back to the drawing board as more than 70,000 users signed a petition against it.

And some observers compare social networking Web sites to trendy nightclubs, some of which lose their buzz and regular customers over time. That was true with Friendster.com, the first big site in the field.

In addition, some users complain that the social networking experience was less than expected, or even created problems in their lives. (See related story on this page.)

Still, social networking is here to stay.

"There is a lot of hype right now," Graf said, "but what youre seeing is not going to stop."

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