Blowing bubbles

Tony Blair called it the "new industrial revolution" while co-founder of CNN Robert Wussler hailed it "the third broadcasting revolution". Now, one burst bubble later, has the public already grown bored with the 'second coming' of the internet? John Parnell investigates.
Analysis, Content management

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Tony Blair called it the "new industrial revolution" while co-founder of CNN Robert Wussler hailed it "the third broadcasting revolution". Now, one burst bubble later, has the public already grown bored with the 'second coming' of the internet? John Parnell investigates.

User-generated content and communication form the cornerstone of the growth of the web 2.0 phenomenon. Video and photo-sharing, social networking and voice over internet protocol (VoIP) are the main success stories to date, although the accomplishments have tended to be in the popularity stakes rather then the financial.

Facebook claims to have 67 million users which is impressive even compared to MySpace's 110 million-strong subscriber base. However, with 2007 revenues amounting to just US$150 million, the company is generating around $2 per user, per year.

 

"Too many marketers create dull, non-interactive pages inside social networks and wait for a viral marketing effect to bring users to their door. - Nate Elliott, Research director, JupiterResearch."

The most astounding fact however, is that Microsoft, undeterred by these figures, paid $240 million for a stake of just 1.6%. While media wags and impressionable types were quick to note that the deal theoretically valued the company at a staggering $15bn, the sensationalist headlines ultimately proved misleading.

The reality is that Microsoft actually bought exclusive rights to distribute ads through Facebook till 2011, along with its tiny stake. The motives behind the misleading structure of the deal are highly strategic.



Some have speculated that the over-hyped headline valuation was fabricated by Microsoft to scare off any other interested parties.

Microsoft may simply be marking out its territory, but there are two other potential scenarios playing out here. The first is a testing zone. If Microsoft is sincere about expanding its media and content-based interests, it now has a massively popular platform with which to hone its strategy.

With Facebook bearing many of the hallmarks of a typical 2.0 service, the site offers a perfect test bed. With its buy-in, the software giant has also gained direct access to regular users of the service.

Should Microsoft perfect a Facebook-based business model by 2011 and use its relationship to cement the tie-up permanently, it could prove a very lucrative move.

In theory, social networking websites offer advertisers unique brand building opportunities. However, in reality, many web 2.0 sites are not attracting the right audiences for advertisers.

Facebook was originally a student only offering and still boasts a large student base. This group may not yet have formed lifelong brand allegiances but in the short-term they have little disposable income.

Other sites have been written off by some US analysts as attracting "shut-ins, people that spend 20 hours a day on their PC and come from low-income groups". Not exactly a key demographic for marketers.

Meanwhile, Facebook remains the eighth most popular website in the world with MySpace at six and YouTube number three. The combined revenue of these three companies is just $900m, compared to the $16bn-plus revenues generated by Google in 2007.

While the number of internet subscribers in the Middle East continues to grow, those looking to make money from the medium in the region have an opportunity to use success stories like Google and those with the reverse fortunes, as a guide when pursuing new business.

Western social networking sites have proved successful in the region with Facebook in particular appearing in the top ten most visited sites across the Middle East.

As internet user demographics continue to evolve, these sites will cease to be as important and localised Arabic-language services should take a leading role.

The content of these sites will be tailored for the local users but lessons for the business models can still be learned from developments internationally.

A common theme that linked the corporate casualties of the 2000 dotcom bust was the lack of a sustainable business model.
 

Facebook is currently teetering on the right side of this fine line. It was evidently a good idea to begin with and by opening its application development to the public it can offer captivating new services to its users.

It is now vital for Facebook to hold onto its subscriber base until it finds a more lucrative way to monetise the massive number of page impressions it generates.

Online network service providers that guarantee targeted advertising benefits are reaping the greatest benefits from the web 2.0 phenomenon. Asmallworld.net selects its members by profession, status and income.

It offers exclusive networking opportunities for the rich and famous and a top-tier target for advertisers who are rumoured to outlay up to $10,000 for a banner ad on the site.

The site's operators claim they offer a far more creative, flexible and interactive advertising opportunity far beyond what can be achieved through a traditional TV spot or a print advert.

And this perhaps reflects the key commercial issue facing Facebook, MySpace, YouTube: the scope of their respective audience is too great.

Facebook previously attempted to address this situation by filtering user preferences and habits with its Beacon programme. It was an unmitigated disaster.

Facebook member's web-use patterns on third-party sites that subscribed to the Beacon programme were distributed to advertisers, even if users had logged off from the social network.

After major privacy concerns were raised the service was switched to "opt-in" rather than "opt-out", which effectively killed it. Facebook CEO Mark Zuckerberg later apologised to users and described Beacon as a "big mistake".

Many brands have joined several social networking sites and invite potential customers to become ‘friends' with them. Recent findings from Jupiter Research have shown that in Europe half of these advertiser pages have fewer than 1000 friends with the average figure a lowly 6,494.

The research also demonstrated that pages with the focus aimed squarely at branded media content, rather than actual products, were twice as likely to attract views.

The opportunities for the owners and creators of such content are pronounced and as marketers look to incorporate this into their campaigns, the effectiveness of these campaigns will improve and the associated revenue streams should offer new opportunities for both those running the sites and those offering the content.

Lead author of the Jupiter report, Nate Elliott, summarises the current problem which should also be read as a warning to a number of emerging Arabic-language portals.

"Too many marketers create dull, non-interactive pages inside social networks and wait for a viral marketing effect to bring users to their door," he says.

"But our research clearly shows that ongoing promotion and advertising, as well as the use of even relatively simple forms of engagement, are vital to the success of branded social networking pages. Most advertisers simply don't know how to market properly within social networks."

 

Hanging up

Commercial potential stymied?

The commercial potential of internet services is often thought to be inhibited in the Middle East by proxy servers implemented in many countries across the region. The business community often highlights the barring of international VoIP services as a prohibitive measure. The UAE proxy server was extended in April of this year to include the Dubai Internet City free zone which had previously enjoyed more liberal web access than other parts of the emirate.

Although there were rumblings about the effect the extension of the proxy server would have on business, the protests missed the point. VoIP services in the UAE are prohibited not by the proxy server but by the country's Telecommunications Regulatory Authority (TRA). Under rules set by the TRA, VoIP traffic is only permitted when the call both originates and terminates in the UAE. VoIP may also still be used for internal network purposes. A company utilising its private network for an international call would be in breach of the TRA rules on VoIP.

VoIP is becoming a default method of communication with VoIP ID names an increasingly common addition on business cards and email signatures.

Some industry observers predict that in the long-term, the TRA will recognise the value of VoIP as a vital tool for the business community and allow unlimited access. A more likely scenario will see Etisalat and du establish their own VoIP services.

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