Social Networks Final[1]

8/4/2019 Social Networks Final[1]

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C2 Industry Report

Monetizing Social Networks:

Transforming Triple-Digit Growth Rates into

Specific Revenue Streams

Prepared by Gabriel Garcia and Rachana Iyengar(646) 471-6183(813) 348-7802March 13, 2007

Research & Analytics GroupISO / KSO

Internal Use Only PwC


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Research & Analytics GroupTransforming Triple-Digit Growth Rates into Specific Revenue Streams

How this Report Is Organized

Entertainment & Media Business Analysis Framework

The PricewaterhouseCoopers Business Analysis Framework serves as the main organizing element for the content of this report. PwCdeveloped the Framework as a tool to present corporate performance and valuation information in a simple, standardized format that facilitatessharing and benchmarking. Industry information includes both management and investor viewpoints as well as information from academicsources.

Research has shown that the elements of the Framework hold true regardless of the business or industry. For different industry sectors,however, some elements may prove particularly useful or insightful. The Framework presented below highlights in bold themost importantelements for the entertainment and media sector, which is the larger group to which the social networks industry belongs.

Because of the private nature of financial performance information for all social networks, this report excludes the financialerformance section entirel .

For Internal Use Only. Explicit permission from sources needed for other use. Page 2


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Executive Summary 4

Market Social Networks Growth Outpacing Every Other Internet CategoryOverview 1) From Global Advertising to Social Networks 7

2) Social Network as Part of Social Computing 103) Social Networks Metrics in the Context of the Internet Space 124) Zooming in the Growth Dynamics of the Largest Social Networks 155) U.S. Social Networks Metrics 17

Strategy Integrating Social Networks into the Telecom/Media/Technology Space

1) Identifying Social Networks Junction Points with Media Conglomerates andCommunication Companies 20

2) Comparing Social Networks and TV Advertising Models 243) Social Networks Informational Advantage in the Audience Measurement Process 264) Developing Electronic Social Networks by Transforming Existing Non-Electronic SocialNetworks

29

5) Closing the Advertising Expertise Gap 316) M&A Scenarios for Social Networks 32

Value Improved Advertising Pricing and Service Upgrades Maximize the Value of Social NetworksCreating 1) Improving Advertising Pricing by Borrowing Lessons From Other Internet Advertisers 36

Activities 2) Creating or Increasing Subscription Revenues by Making Available Additional Services 393) E-Commerce Opportunities in Virtual and Real Social Networks 414) Social Networks' Main Concerns 42

Appendices Social Networks Analysis Defined 45Glossary 46

Sources 53

Endnotes 54



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Monetizing Social Networks

Transforming Triple-Digit Growth Rates into Specific Revenue Streams

Executive Summary

MARKET OVERVIEW: SOCIAL NETWORKS GROWTH OUTPACING EVERY OTHER INTERNET CATEGORY

HIGHEST VISITOR GROWTH RATE IN THE INTERNET SPACE. The social networks industry is the Internet category that hasexperienced the largest growth in unique visitors in the past year on a worldwide basis. Between November 2005 and November2006, the number of unique visitors to Fox sites, including MySpace, increased 393 percent, leaving behind Google, Yahoo, and otherestablished Internet leaders. These gains boosted Fox sites' 2006 worldwide internet reach to 18 percent, more than quadrupling itsNovember 2005 reach of four percent. YouTube experienced the greatest gain adding 14 percentage points of reach (a 14 times increaseyear-over-year).

A GLOBAL PHENOMENON WITH STRONG LOCAL FLAVORS. Social networks are a global phenomenonsome social networksare developing overseas while others are more U.S. focused. More than 70 percent of all visitors to YouTube, Microsoft Spaces, andother popular social networks come from outside the United States. The opposite is true of MySpace, Facebook, and Classmates where

70 percent or more of the visitor base logs in from the United States.

DIFFERENCE IN METRICS BETWEEN DIFFERENT CLASSES OF SOCIAL NETWORKS. Blog-only social networks have a highlevel of unique visitors but a low level of page views and time spent . Some social networks warrant a greater amount of time spentsurfing through more pages because of the content they offer. Other sites attract lots of users who visit only a few pages because of thetype of content they seek.

IN THE U.S. MARKET, MYSPACE AND FACEBOOK DOMINATE PAGE VIEWS AND AVERAGE TIME SPENT. Page view figuresshow an exceptionally high concentration on MySpace and Facebook. With 97 percent of the top 10 page views, these two social

networks have a virtual monopoly in terms of the attention of their respective demographics. Furthermore, several other social networkshave experienced double-digit declines, meaning that users/visitors have switched a significant portion of their attention to the two leaders'sites.



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VALUE CREATING ACTIVITIES: IMPROVED ADVERTISING PRICING AND SERVICE UPGRADES MAXIMIZE THE VALUE OF SOCIAL

NETWORKS

IMPROVING ADVERTISING PRICING BY BORROWING LESSONS FROM OTHER INTERNET ADVERTISERS. Offering a full set of advertising alternatives on social networks is likely to increase associated revenue by attracting

advertisers to the most successful alternatives. Managing ad space on a site correctly can make a significant difference in the effective delivery of the message. Like TV ads, Internet ads can be sold at a premium in internet primetime. Segmented audiences offer more value than un-segmented audiences.

Ads that deliver traffic with higher purchase intent should be priced at higher rates.

CREATING OR INCREASING SUBSCRIPTION REVENUES BY OFFERING ADDITIONAL SERVICES. Upgrading the social network userscommunications alternatives creates an opportunity to tap into subscription revenues. MySpace members can access the websitewirelessly when they subscribe to Helio or Cingular. This additional communication channel is an upgrade from website-only access, andMySpace is pricing it at $2.99 when accessed from Cingular.

E-COMMERCE TO HAVE A LIMITED ROLE IN SOCIAL NETWORKS.Ecommerce may take the shape of closed micro economies such asSecond Life. With 2.5 million total residentsas registered users are calledand 550,000 monthly visitors, Second Life has established

itself as the premiere virtual world where real world companies can test their marketing strategies. The site owner collects revenue byselling virtual land and on the "carry" of U.S. dollars exchanged for the virtual currency.

SOCIAL NETWORKS PRIMARY CONCERNS.

Lack of entry barriers Click fraud Proprietary content Managing racy content



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Market Overview

Social Networks Growth Outpacing Every OtherInternet Category

1) From Global Advertising to Social Networks

Exhibit 1

Internet Access and Advertising Spend

Source: PwC, IAB

USA, $40,209

EMEA, $49,524

AsiaPac,

$48,418

LatAm, $4,341

Canada, $2,021

USA, $60,168

EMEA, $83,421

AsiaPac,

$110,282

LatAm, $8,581 Canada, $3,109

$-

$50,000

$100,000

$150,000

$200,000

$250,000

2005 2010

(figures in $m)

Internet user growth rates are expected to continue in

the double digits over the next five years, leading to

similar growth rates for access and advertising

revenues. According to PwC, worldwide spending on

online access and advertising is expected to grow 13

percent annually (20062010 CAGR) to reach $266

billion by 2010. As shown in Exhibit 1, total spend will

almost double from 2005 to 2010, and emerging regions, such as

Asia Pacific and EMEA, will lead global growth. The bulk of that

expansion, however, will come from Internet access as more users

switch to broadband, and penetration rates increase in lesser

developed countries.

Exhibit 2

Ad Spending Worlwide(f igures in $B)

Media Format 2006 E 2008 E 2010 E

'06 - '10

CAGR

Television 157.9 180.7 202.1 6.8%

Newspapers 119.8 130.3 140.1 4.0%

Magazines 54.3 59.9 64.5 4.4%

Radio 34.0 37.2 41.2 4.9%

Internet 28.8 41.4 51.6 18.1%

Out-of-Home 21.2 24.6 28.0 7.3%

Total 413.3 469.6 521.3 6.2%

Source: PwC, IAB

The rapid Internet-user growth rate has been only partially

addressed by advertisers because of significant inertia in

reallocating marketing budgets. According to Forresters 2004

Benchmark Study, although consumers spend 34 percent of their

media consumption time on the Internet, advertisers currently spend

only 6 percent of all ad dollars on online advertising. Over time, this

gap should shrink with more dollars moving online where consumers

spend a greater amount of their time. PricewaterhouseCoopers



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estimates global dollars spent on online advertising to be

nearly $29 billion in 2006 and to grow at an 18.1 percent

compounded annual growth rate (CAGR) from 2006 to

2010 (see Exhibit 2).

Exhibit 3

Ad Spending Worldwide (%Total)

Source: PwC, IAB

38%

29%

13%

8%7%5%

38%

28%

13%

8%9%5%

39%

27%

12%

8%

10%5%

0%

10%20%

30%

40%

50%

60%

70%

80%

90%

100%

2006 2008 2010

Out-of-Home

Internet

Radio

Magazines

Newspapers

Television

The expected faster growth rate of Internet advertising

will still amount to only a 10 percent share of theadvertising market in 2010, providing ample

opportunity for growth. Because of Internet advertisings

relatively small share size, the Internet sector can support

a growth rate three times faster than that of the industry

overall and still represent close to 10 percent of total ad spending

worldwide (see Exhibit 3).

Internet advertising growth rates are expected to be higher on

search- and classified-based ads. According to ZenithOptimedia's

Monthly Advertising Estimates release (Exhibit 4) online ad sales are

expected to grow 128 percent from $18.7 billion in 2005 to $42.7

billion by 2009, a 23 percent four-year CAGR. At the end of 2006,

search-based advertising is expected to grow 35 percent year-over-

year to $10.6 billion, while online classifieds are estimated to

increase 39 percent year-over-year to $4.6 billion. Within these two

categories, advertisers have access to more information about a

consumersuch as interest (search) or location (classified/local)

than when using display ads on the Internet.

Exhibit 4

Online Advertising Spending Worldwide

(f igures in $M)

2005 2007E 2009E 2005 2007E 2009E

Display 7,043 10,462 13,292 31% 38% 33% 17.2%

Search 7,833 13,993 19,711 46% 42% 45% 26.0%

Classified 3,291 6,169 8,856 21% 18% 20% 28.1%

Other 545 721 825 2% 3% 2% 10.9%

Total 18,712 31,344 42,685 22.9%

Source: ZenithOptimedia, December 2006

% of Total '05 - '09

CAGR



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EMarketer estimates that advertising revenues of

social networks will grow at 57 percent CAGR between

2006 and 2010, twice the rate of all other Internet

advertising. Exhibit 5 shows eMarketer's estimate for

Internet advertising sales. The 2007 estimate of $1.1

billion would be 3 percent of the total Internet advertising

market, which seems conservative because of the

extraordinary growth experienced by social networks.

However, most social networks advertising falls into the

display category, which has the least attractive economics.

Social networks advertising is heavily concentrated with

the lion's share of revenues (47 percent) going to

MySpace, the market leader. Geographically, the United

States is also the most important market with over 77percent of all revenues expected to be generated there in

2007. The relative importance of the U.S. market will

decline in the future as revenue outside of the United

States is expected to grow faster in the next three years.

Exhibit 5

Social Networks Advertising Estimate

2006 2007E 2010E

US 350 865 2,150 57%

of which

MySpace 525

Other SN (Facebook etc) 200

SN from other portals 95

Vertical Social Networks 45

Rest of the World 85 260 665 67%

Total 435 1,125 2,815 59%

US 80% 77% 76%

ROW 20% 23% 24%

Source: eMarketer

2006-10

CAGR



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2) Social Networks as Part of Social Computing

Social networks are embedded in a broader group of

Internet companies called social computing. Social

computing is the sub-category of Internet sites defined by

interaction among users of the site. Interaction between

users and the site defines most others. Although the lines

are not always clearly drawn, this report uses Charron

(2006) general definitions for the following seven

categories of social computing (see also Exhibit 6).

2.1) Social networks lie at the heart of social computing

and are sites where each user displays personal

information (using text, pictures, and video). Users interactusing common characteristic/preference tags. This

exchange ultimately creates a network. Some social

networks, like MySpace, have mass appeal; others, like

Bakespace (recipes based), appeal to niche audiences.

The primary differentiator for social networks is that users

display a significant amount of personal information and

interact with other members based on that profile.

2.2) Wikis allow users to collaborate on the creation of

software or the compilation of information. Wikipedia is an

example.

2.3) Tagging sites such as Digg.com allow users to "label"

information on the Internet so that it becomes easier for users of the

site to review/identify.

2.4) Blogs, such as Xanga.com, allow users to track their activities,

express opinions, and so on.

2.5) P2P sharing sites allow users to share documents (music,

video, others) by contributing their own computer to work as a

server. This has generated significant controversy for copyright

issues. BitTorrent.com is an example.

2.6) Podcasts, probably the least interactive of all, allow consumers

to broadcast their music or video information in a format that is easy

to download into a portable, such as an iPod, with a potential

audience of millions. NPR radio broadcasts are an example.

2.7) User review portals, such as CNET.com, are an"independent" venue for sharing experiences and opinions on a

variety of issues from vacation hot-spots to electronic gadgets.

This report concentrates on the core social networks, but includes

sites like YouTube and Blogger, which could fit into more than one

category.



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Social MappingExhibit 6

Social Networks are part of a larger social computing phenomenon

Source: Forrester Research

Source: Forrester

The creators of social maps analyze, for

marketing purposes, the interactions

among network members and the

personal information they display.

Compared to the single-user information

generated from cookies, the interactions

among members of a network help refine the

analysis of each members taste to develop

more efficient, effective advertising.



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3) Social Networks Metrics within the Context of theInternet

Social networks is the Internet category that has

experienced the fastest growth in unique visitors in

the past year on a worldwide basis. As shown in Exhibit

7, between November 2005 and November 2006, the

number of unique visitors to Fox sites (which include

MySpace) increased 393 percent, leaving behind Google,

Yahoo, and other established Internet leaders. These

gains boosted Fox sites' 2006 worldwide internet reach to

18 percent, more than quadrupling its November 2005

reach of four percent. Social computing champions

Wikipedia and YouTube also experienced significant

growth.

The five largest Internet sites posted visitor growth

rates below the growth rate of new Internet users

overall, implying a decline in audience reach. For

example, Microsofts reach dropped to 70 percent of

Internet users, while eBay and Time Warner also

experienced 4 percent declines. YouTube experienced the

greatest gain, adding 14 percentage points of reach (a 14-fold increase year-over-year).

Exhibit 7

Top 20 Most Visited Websites, Worldwide(millions of unique visitors)

Website Nov '05 Nov '06 Nov'05 Nov'06

Growth

1 Microsoft 486 502 75% 70% 3%

2 Google 436 476 68% 66% 9%

3 Yahoo! 452 475 70% 66% 5%

4 eBay 253 251 39% 35% -1%

5 Time Warner 224 222 35% 31% -1%

6 Wikipedia 84 172 13% 24% 105%

7 Amazon 135 144 21% 20% 7%8 Fox 26 130 4% 18% 393%

9 Ask 113 111 18% 15% -2%

10 Youtube 4 108 1% 15% 2307%

11 CNET 94 101 15% 14% 7%

12 Apple 77 99 12% 14% 27%

13 Adobe 96 98 15% 14% 3%

14 Lycos 95 85 15% 12% -11%

15 Viacom Dig N/A 75 N/A 11% N/A

16 NY Times 58 71 9% 10% 21%

17 Real.com 72 64 11% 9% -11%

18 Sony 57 61 9% 8% 7%

19 Sina.com N/A 58 N/A 8% N/A

20 Tencent N/A 56 N/A 8% N/A

Tot Users 645 718 11%

Note: Fox Sites is primarily represented by MySpace

Source: comScore

% Reach

Social networks are a global phenomenon: some social

networks are developing overseas, while others are more U.S.

focused. As Exhibit 8 shows, more than 70 percent of all visitors to

YouTube, Microsoft Spaces, and other popular social networks come


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from outside the United States (noted here as ROW, the

rest of the world). The opposite is true for MySpace,

Facebook, and Classmates, where 70 percent or more of

the visitor base logs in from the United States.

Exhibit 8

Social Networks International Breakdown Analysis

(millions visitors, Nov. 2006)

Total

Visitors US ROW US ROW

YouTube 107,994 24% 76% 24% 22%

MSN Spaces 100,679 9% 91% 9% 25%

MySpace 82,608 69% 31% 55% 7%

Hi5 23,079 11% 89% 2% 6%

Flickr 21,749 30% 70% 6% 4%

LiveJournal 19,383 21% 79% 4% 4%

Facebook 18,586 90% 10% 16% 1%Orkut 17,693 2% 98% 0% 5%

Friendster 17,201 6% 94% 1% 4%

Classmates 15,303 86% 14% 13% 1%

Yahoo!360 11,931 39% 61% 4% 2%

Tagged 10,423 19% 81% 2% 2%

Xanga 9,876 50% 50% 5% 1%

LinkedIn 1,897 40% 60% 1% 0%

Total SN Universe 476,315 22% 78%Source: comScore

% Total % Reach

Analysis of reach data provides more insight into the

global/local nature of each social network. YouTube

gets 76 percent of its unique visitors from overseas,

roughly in line with total Internet users worldwide. Its reach figures

are fairly similar. However, a site like Orkut, with 98 percent of its

users outside the United States, has only 5 percent reach worldwide.

This is because the majority of its members are from one country

only (Brazil). U.S. sites that based their networking in attendance to

U.S. college affiliation (e.g., Facebook) have a high reach within the

United States but this is minimal outside of the country.

Exhibit 9

Increased Use of Social Network Tools by Americans

Source: University of Southern California, PwC

% U.S. Internet Users that...

12.5

23.6

11

7.4

3.2

0 5 10 15 20 25

2006

2006

2003

2006

2003

Keep a Blog

Post Pictures

Maintain a Personal Website

32% CAGR

28% CAGR

The growth of social networks in the United States reflects

changes in Americans relationship with the Web. As Exhibit 9

shows, a study from the Center of Digital Future at the University of

Southern California (2006) survey found an increase of (roughly) 30



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percent CAGR between 2003 and 2006 in the percentage

of Internet users who kept a blog or posted pictures.

Furthermore, 12.5 percent of those surveyed in 2006

maintained a personal website. These figures reflect an

increasing demand from Internet users to maintain

personal information on the Web. That repository of

personal information together with communication features

is what creates a social network.

Generation Y's distrust of traditional media is a

powerful force behind the increased popularity of

social networks. According to Charron (2006) survey,

there was an-across-the-board decline in trust in every

type of media between 2002 and 2004 (see Exhibit 10)except on the Internet. Clearly, the ability to obtain

information on ones own increases the trust placed in it.

Exhibit 10

Why Media Conglomerates Should Care about Social Networking



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4) Zooming in on the Growth Dynamics of the Largest

Social Networks

Exhibit 11

Top 10 Social Networking Sites Worldwide(millions of visitors)

%

Unique Visitors Nov '05 Nov '06 Growth Nov '05 Nov '06

1 Youtube 4.5 108.0 2308% 1% 15%

2 MSN Spaces 83.4 100.7 21% 12% 14%

3 Yahoo! Geocites 90.9 91.5 1% 14% 12%

4 Blogger 52.6 86.3 64% 8% 12%

5 MySpace 26.7 82.6 209% 4% 11%

6 Lycos 47.0 43.3 -8% 7% 6%

7 Six Apart Sites 24.3 30.3 25% 4% 4%

8 Yahoo! Groups 22.3 24.3 9% 3% 3%

9 Hi5 21.6 23.1 7% 3% 3%

10 Flickr 7.7 21.7 182% 1% 3%

Internet Users 667.7 736.1 10%

Source: comScore

% Reach

Social networking growth has been concentrated in a

few key sites. Exhibit 11 details the global social network

landscape and provides unique visitor growth statistics for

the 10 most visited sites. YouTube and MySpace haveachieved the highest year-over-year growth rates, while

YouTube and MSN Spaces are clearly the leaders in total

unique visitors on a worldwide basis. Old social

networks/community-based sites like Yahoo! Geocities,

and Lycos have experienced hardly any growth or decline.

Globally, page views and average time spent on social networks

sites have also shown triple-digit growth. As Exhibit 10 shows,

the top 10 most viewed sites (by pages viewed) have grown on

average 147 percent between November 2005 and November 2006.

However, the bulk of this growth occurred in the largest social

networks, with the top three representing more than 70 percent of all

page views for the top 10.

Exhibit 12

Top 10 Most Viewed Sites, Worldwide

(in billion views)

Page Views Nov '05 Nov '06

Y/Y

Growth

%

Top 10

1 MySpace 9.6 40.7 324% 40%

2 Orkut 10.9 22.9 110% 22%3 Facebook 4.5 10.1 126% 10%

4 Mixi 3.3 6.2 91% 6%

5 Fotolog 1.5 4.9 229% 5%

6 Bebo 0.3 4.6 1626% 4%

7 Hi5 3.6 4.0 11% 4%

8 Friendster 2.6 3.8 45% 4%

9 Skyblog 1.7 2.9 68% 3%

10 MSN Spaces 3.4 2.1 -38% 2%Average 4.1 10.2 147%

Total 41 102

Source comScore



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Growth in network users increases number of

"browsable" pages and as a consequence, increases

the average time spent per time unit. As shown in

Exhibit 13, Bebo experienced a 420 percent rate increase

in average time spent, although in terms of users it

remains among the smaller of the top 10 sites. The logic

behind time spent comes from the large number of page

views that Bebo users accumulated. Between November2005 and November 2006, page views increased 1600

percent and placed the sites total at five billion page views

(one-eighth of My Space's total).

Exhibit 13

Top 10 - Average Time Spent, WW(in minutes)

Avg Time Spent Nov '05 Nov '06

Y/Y

Growth

1 Person.com 15.9 60.8 282%

2 Gaiaonline 61.0 54.8 -10%

3 Mercora 25.4 54.0 113%

4 Arto 51.6 48.2 -7%

5 Orkut 38.5 41.0 6%

6 Cherrytap N/A 35.8 N/A7 Nexopia 21.4 33.0 54%

8 Bebo.com 5.5 28.6 420%

9 MySpace N/A 26.7 N/A

10 Friendster 11.8 25.3 114%

Average 28.9 40.8 41%

Source: comScore

MySpace has a significant lead in market share. In terms of

global page views, MySpace commands the largest share with

almost 41 billion page views as of November 2006 (see Exhibit 11).

Orkut and Facebook occupy the second and third places. This

changes slightly when the figures are analyzed on a U.S.-visitors

only basis.

Blog-only social networks have a high level of unique visitors

but are low on page views and time spent. Some social networks

warrant a greater amount of time spent surfing through more pages

because of the type of content available. Other sites attract lots of

users who visit only a few pages because of the type of content they

seek. In the Orkut website, users can start on their personal webpage and connect to a friend's web page, then connect to someone

else's site through the friend's page, and so on. This would result in

numerous page views. On the other hand, a more popularly visited

site, like Blogger, could have one or two blogs that are read by a

large number of users, which would result in many unique visitors

who view a small number of pages while on Blogger.com.

Social networks that emphasize live interaction dominate the

average time-spent category. Chatting sites like Person.com or

Gaianoline require their members to interact live, reducing the

number of "voyeurs" or visitors who are not members of the site. This



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advertise their products and services for the most effective

return on investment.

Exhibit 15

Top 10 Most Viewed Sites, U.S.

(in million views)

Page Views Nov '05 Nov '06

Y/Y

Growth

%

Top 10

1 MySpace N/A 38,727 N/A 78.9%

2 Facebook 4,451 9,039 103% 18.4%

3 MSN Spaces 110 282 156% 0.6%

4 Blogger N/A 224 N/A 0.5%

5

AOL People

Connection 313 202 -35% 0.4%

6 Classmates 246 185 -25% 0.4%

7 Yahoo! Geocities 216 151 -30% 0.3%

8 Six Apart Sites 344 149 -57% 0.3%

9 Lycos 80 72 -10% 0.1%10 AOL Hometown 61 32 -48% 0.1%

Average 727.6 4,906 574%

Total Top 10 5,821 49,063

Source: comScore

Page view figures show exceptionally high

concentration on MySpace and Facebook. With 97percent of the top 10 page views, these two social

networks have a virtual monopoly in terms of the attention

of their respective demographics. Furthermore, several

other social networks have experienced double-digit

declines, meaning that users/visitors have switched a significant part

of their interaction to the two leaders' sites.

Exhibit 16

Top 10 - Average Time Spent, U.S.(in minutes)

Avg Time Spent Nov '05 Nov '06

Y/Y

Growth

1 MySpace N/A 28.1 N/A2 Facebook 17.7 20.4 15%

3 Classmates 2.9 4.7 63%

4 MSN Spaces 5.7 4.0 N/A

5 Six Apart Sites 5.7 3.9 -31%

6

AOL People

Connection 3.1 3.4 11%

7 Blogger N/A 2.5 N/A

8 Yahoo! Geocites 2.1 2.3 10%

9 Lycos 1.6 1.8 N/A

10 AOL Hometown 1.7 1.3 -22%

Source: comScore

Average time spent is dominated by MySpace and Facebook. As

Exhibit 16 shows, MySpace again is the domestic leader in terms of

average time spent with 28 minutes spent per usage-day followed by

Facebook with 20.4 minutes. Classmates.com, which may be

benefiting from the renewed attention on social networks, has shown

the highest level of annual growth with a 63 percent year-over-year

increase in a users average time spent on the site.



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Viral effectsii

have been monetized through display ads sales.

As shown in Exhibit 18, total ad impressions on MySpace follow the

same pattern as page views. Although ad impressions have

generally outpaced the growth rate of visitors, the rate of that

outpacing has increased quite significantly. This is because of both

MySpaces improved ability to place its ad inventory in the market

and greater demand from advertisers.

The Evolution of MySpace as Proxy for Other Social

Networksi

Exhibit 17

Social Networks: Page View Growth Outpaces Unique Visitor Growth

Source: comScore

May 2005 =1

0.5

1

1.5

2

2.5

3

3.5

4

May-05

Jun-05

Jul-05

Aug-05

Sep-05

Oct-05

Nov-05

Dec-05

Jan-06

Feb-06

Mar-06

Apr-06

May-06

# Visitors # Pages

Exhibit 18

Advertisers Are Catching Up with Visitors

206

Source: comScore

May 2005 = 1

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

May-05

Jun-05

Jul-05

Aug-05

Sep-05

Oct-05

Nov-05

Dec-05

Jan-06

Feb-06

Mar-06

Apr-06

May-06

# Ads # Visitors

Time spent online and total page views on social

networks are rapidly outpacing visitor growth. Exhibit

17 details the evolution of MySpaces unique visitor and

monthly page views from May 2005 to May 2006. After

December 2005, growth rates of pages viewed were much

higher than that of unique visitors, indicating that visitors

were reading many more pages than in previous visits.

The increasing growth rates reflect the "viral" nature of

social networks.



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Strategy

Integrating Social Networks into theTelecom/Media/Technology Space

1) Identifying the Junction Points of Social Networks with Media

Conglomerates and Communication Companies

Social networks are characterized by 1) the existence of a

repository of user-generated content and 2) the need of

members to communicate. User-generated content in a social

network can include text, pictures, video, and any other electronically

stored content. Users communications needs are satisfied using e-

mail, SMS, voice, video, or any other method that can exchange

information electronically.

Social networks user-generated content and communications web

make them an interesting fit for both media conglomerates and

cable/telecom/wireless companies for different reasons (see Exhibit

19).

The abundance of user generated content is attractive to media

conglomerates because of their expertise in creating and

distributing professionally generated content. Social networks

like MySpace and YouTube have become ownersiii

of a great deal of

content that can be processed and distributed in the same way as

professionally generated content is through broadcast TV, cable,

DVDs, and other media. However, social networks content is

acquired at little or no cost, opening up the opportunity to achieve

substantial returns on the sale of content even at relatively low price

points.

Exhibit 19

Integrating Social Networks into Telecom and Media

Source: PwC

Social

Netw orks

Communications

Need

User Generated

Content

Professionally

Generated Content

IP-Based

Communications

Media

Conglomerates

Cable, Telco,

Wireless

MySpace, YouTube

Boost Mobile

Cable, telecom, and wireless companies have considerable

expertise in managing communications and existing

infrastructures designed to facilitate communications. For these

companies, serving the communications needs of social networks

members is an opportunity to expand the use of their services and to

increase their number of clients. Wireless carriers with strong youth-

oriented brands, such as Boost Mobile, already are trying to build

social networks from their customer bases by adding content to their



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wireless service offering (see, for example,

www.boostmobilecommunity.com).

Exhibit 20

Social Networks from Media Conglomerates' PerspectiveUsing the synergies on content sale:

Movie theater Internet

TV Portables

CableCD, DVD, others

Internet

Portables DVD - The 100 "hottest" YouTube videos

CD - The 100 most popular MySpace tunes

Book - The funniest MySpace pickup lines

Source: PwC

User

GeneratedContent

Professionally

Generated

Content

New distribution systems create additional opportunities for

monetization of social networks' user generated content (see

Exhibit 20). Just as Disney can sell Desperate Housewives on

broadcast TV, cable TV (re-runs), CD/DVD, Internet, Itunes, and

wireless TV (in the future), social networks can repackage their

content for sale under various arrangements. YouTube could well

create DVDs of its "top 100 hottest videos of 2006" or capitalize on

its users preferences by producing a "top 100 summer 2006 music

downloads." Doing so would, of course, entail securing the

appropriate licensing, revenue share, and other required

agreements. User-generated content that is exhibited or packaged

by social networks should be treated similarly in terms of

authorization. Such use may also entail a payment to the content

owners, which will likely be a token amount to each individual

because content will be sold in bulk (based on grouping features).

Exhibit 21

Social Networks from Communication Companies' Perspective

Using the synergies on communications:

Email Email

Text Text

Voice Data (Pics)

Video

Data Wireless Capabilities

+ Wireless All IP Voice and Video

Satelite Position

Source: PwC

CommunicationsNeed

IP-Based

Communications

Integrating a social network into a cable/telecom/wireless

company builds on the synergy between the communication

needs of social network users and the communications

expertise and service infrastructure of the communication

companies (see Exhibit 21). Most communications through social

networks are still based on text exchanges through blogs or e-mails

as well as some data exchange in the form of photos and images.Most consumers, however, have a much broader array of

communication services available to them. Social networks likely will

begin to expand their communications menus to the extent that their



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investments in these upgrades can be recovered through

advertising, subscriptions, or both.

The Internet can deliver low-tech communication services at

extremely competitive rates, but it fails to offer the all-

encompassing solution that communication companies can. An

integrated communication system gives customers the ability to

switch easily between voice or video communication through fixedline or wireless. On the Internet, voice is available from Skype and

video through YouTube or Yahoo, but none offer wireless service.

Cable/telecom/wireless companies own and operate pieces of these

communication networks, which creates an incentive to cultivate

social networks as a source for their own growth

The Verizon/YouTube Agreement

The Verizon/YouTube deal is typical of the complement between

communication companies and social networks (see Exhibit

22). The key component here is Verizon's ability to provide

connection speeds and wireless handsets to support video uploading

capabilities that are necessary for YouTube to satisfy its users need

for wireless video exchange.

Depending on how the relationship between these two

companies evolves, Verizon could meet even more

communication needs: blogs, e-mails, perhaps even "in-

network conference calls" among users. Getting YouTube

customers to use such services would create an opportunity for

Verizon to develop a deeper, stickier relationship with them. It could

also revitalize growth in products like conference calling that have

reached maturity in the corporate segment.

Exhibit 22

Note: VCAST is Verizon's brand f or high-speed data netw ork

Source: PwC

Analyzing the YouTube/Verizon Deal

YouTube

Need toupload/download

videos wirelessly

Home-made

Videos

"VCAST "3G CDMA

network

Verizon

As the owner of content, YouTube has an incentive to establishagreements with all carriers and has only provided temporary

exclusivity to Verizon. Because of its sheer size, YouTube can

decide with whom it is willing to sign an agreement. Assuming that

other carriers can deliver the same service as Verizon, YouTube's



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25/54


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As presented in Exhibit 25, social networks' feedback process offers

these advantages over the existing rating process:

1) Population vs. sample data. Social networks capture

information on visitors through their websites. In aggregate,

this represents the real statistics of the population served as

compared to the projected statistics on a sample that TV

broadcasters use. This gives social networks owners an

informational advantage over owners of other entertainment

and media.

2) Instant vs. delayed information exchange. By

incorporating a multi-

level communicationcomponent (e.g., e-

mail, blogs), social

networks provide the

network owner with

quick and deep

information on

viewers' preferences

("todays most

popular is" or

"XOgu37 says that

this is cool because

"). Services of

companies that are

experts in analyzing

users' behavior on

the Internet will be in

Exhibit 25

Comparing the Audience Measurement Process Between TV and Internet

TV: Sample information and audience measurement agencies with exceptional leverage

Internet: Better information with reduced set of relationships

Source: PWC

Rating agencies

control the process

metrics through

sampling process,

subject to their"boxing".

Site owner has all

population

information. With

appropiate systems

owner can segment

and deliver this info

directly to clients, who

can then create

strategies. In house

advertising

Fox

Netw ork

Cable/Satellite

Distribuitors

TV

Screen

TV

Screen

TV

Screen

MySpace

The Internet

PC

Screen

PC

Screen

PC

Screen

Rating

Agencies

Partial population

Information at best

Sample Information

Ad

AgenciesClient

Information on w hole universe w ith greater

segmentation (f rom social prof ile)

Client

Auditor/Independent

Compiler Verifies

In-house Creative TeamOffers Customized Products



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Research & Analytics Group


28/54


The advertising market could face a similar situation.

Advertisers would need to monitor the use data of each

distribution system (e.g., TV, Internet, wireless) and the cost of

reaching that audience in real time with ads placed most

effectively. Feeds from websites, wireless carriers, cable providers,

and others will generate a massive amount of data about consumer

behavior, data that should be processed quickly and effectively. In

the trading markets, participants have developed mathematicalalgorithms to place their trades at the most advantageous rates.

Assuming that the data being retrieved from all these sites becomes

available, perfect knowledge of the audience on each screen (and its

cost) will allow advertisers to maximize the efficiency of their ad

dollars.

Information availability/sharing would be crucial to develop this

market. An essential ingredient for algorithms to be useful is to have

a continuous set of reliable data. This is still a work in progress for

many websites. Furthermore, the extent of information sharing about

users behavior is and will be an issue that could require further

discussion among the different market participants. It is in the

interest of multi-platform distribution owners to provide abundant

information on the audiences that they reach to achieve better

pricing. However, firms that only participate in one distribution

system (e.g., TV) will resist using multi-platform measurements as

they will have to compete not only with those in their category, but

with other distribution systems (e.g., Internet, wireless) as well.




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4) Developing Electronic Social Networks by Transforming

Existing Non-Electronic Social Networks

4.1) Strengthening Communications Companies' Social

Networks

Exhibit 26

The Social Network Nature of Wireless Voice Offerings

As telecom/wireless companies try to promote heavier use of

their services by offering discounted rates for family and

friends "networks," they areinadvertentlybuilding social

networks. As the example in Exhibit 26 shows, T-Mobile and Alltel

among other wireless providers have been offering financial

incentives for subscribers to register their networks of friends or

family with the company. The idea is to create a sticky relationshipwith the wireless carrier (from the user and its network of

relationships).

Using these networks as a blueprint, and after adding specific

functionality, communication companies should be able to

create (or enhance) their social networks. The ability to storecontent and provide a greater set (more than voice) of

communication tools should be pre-requisite to creating a social

network. Examples of possible upgrades to social networks using

wireless services include:

1) AAA members and car clubs. A space to meet fellow

drivers, wireless mapping of locations, dining tips for

travelers, and/or the ability to locate other AAA travelers in

the area to share information on common car problems or

maintenance.

2) University affiliations. Access to university content, alumni,

profiles, backgrounds, and so on. These are strong social

networks that already exist; they simply need access to

additional technology.



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http://www.airg.com/


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y pTransforming Triple-Digit Growth Rates into Specific Revenue Streams

be exclusive, and the endorsement of the site by the brands to be

included is welcomed but not required. This underscores Yahoo'sbelief in the capacity of brands to create connections among its

users.

5) Closing the Advertising Expertise Gap

Exhibit 27

Advertising will become a primary source ofrevenue for wireless providers.

Source: Lucent, P WC

Communications companies must acquire or develop

advertising capabilities to take full advantage of their social

networks. Wireless providers and broadband providers (to someextent) own the screens that people use to communicate. The partial

use of these screens as a source of advertising revenue should be

one of these companies' top priorities. As shown in Exhibit 27, a

cable screen that shows the location of an associated wireless

phone creates the opportunity to sell advertising. For example, this

ad could be for a nearby store (e.g., a supermarket) where ahypothetical viewer (say a mom) tells her teenage daughter to buy

Downy on the way home.

Communication companies could also bridge their advertising

experience gap by partnering with Internet companies (Yahoo,

Google). As an example, Vodafone recently announced that it hasestablished a joint venture with Yahoo to create a full set of

advertising options for its wireless service. Ad options will include

banners, short video clips, and text ads (to be displayed after local

searches). Additionally, Yahoo will provide the sales force and will

use its proprietary profiling technology to customize ads based on

the demographic user data collected by Vodafone.

Mobile can provide rich user information for advertisers

because of the high proportion of postpaid customers in the

United States. Although occasionally pre-paid clients register their

financial profile, the preponderance of prepaid service outside of the

United States eliminates important credit and geographic references

about the customer. Mobile profiling iv is likely to be an area of

important growth as mobile Internet continues to develop.




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6) M&A Scenarios for Social Networks

Exhibit 28

It is Hard for Outsiders to Buy into the Internet Space

Source: Citigroup, PWC

U.S. Internet M&A #Transactions

0

20

40

60

80

100

120

Int-> Int Non-Int -> Int Int -> Non-Int

(Acquirer-> Acquiree)

Integrating Internet-based social networks into media

conglomerates or communications companies requires clearing

two hurdles: 1) "cultural" reticence from Internet companies to

be acquired by non-Internet companies and 2) adapting to deal

sizes that are more promising than transformational in nature.As shown in Exhibit 28, of all Internet M&A activity between June

2004 and July 2006, over 118 transactions were between Internet

companies; in only 34 cases were non-Internet companies the

purchasers. Although mergers within the same industry are not

uncommon, the difference here is significant. Mergers in which

Internet companies buy non-Internet companies were alsoinfrequent: only eight such transactions between 2004 and 2006.

Scouting for the right company may mean focusing more on the

promise and less on the current tangible contribution. As Exhibit

29 shows, the majority of Internet acquisitions fall into the $10 to $50

million range, a figure that may not even appear on the radar screenof many media conglomerates and communication companies.

Gaining expertise in analyzing enterprises of this size may be

beneficial for media conglomerates and communications companies.

Exhibit 29

David and Goliath: How to Bolt a $50m Company onto a $50bn One?

Source: Citigroup, PWC

U.S. Internet M&A #Transactions

0

10

20

30

40

50

60

70

80

$10 m $10-50m $50-100m $100-500m >$500m

(Transaction Value $m)



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Research & Analytics GroupTransforming Triple Digit Growth Rates into Specific Revenue Streams


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Value Creating Activities

Improved Advertising Pricing and Service Upgrades Maximizethe Value of Social Networks

Exhibit 32

Social Networks as Part of Marketing Evolution

Source: Forrester Research

Social computing has significantly expanded the marketing tool

kit currently available to advertisers. As depicted in Exhibit 32,

new channels that run on the Internet and cell phones along with

new technology to monitor consumer behavior provide opportunities

to improve the advertising process. Social networks lie at the center

of social computing alternatives, providing an audience for

advertising, subscription, and e-commerce revenues. This section of

the report offers specific recommendations to develop each of these

revenue sources.

Exhibit 33

Social Networks' Revenue Streams

Advert is ing The main revenue generator in a social network

Minimizes the barrier of entry to the network

Subscript ion Less commonly used. Possible on some social

networks that have unique content.

E-commerce E-commerce in social networks limited by

extensive commerce dedicated sites.

Source: PWC

Social networks greatest revenue component will continue to

be advertising, but subscription and e-commerce revenues willgrow at a faster rate. Because of the open access allowed by

advertising-based models, social networks that use advertising

models will continue to attract the broadest set of users (and

advertisers) as the Internet crowds out TV, magazines, and other

communications channels for consumer attention. Subscription

revenues will grow quickly as the pace of migration of social

networks into mobile picks up in 2007 and 2008. E-commerce

models will likely be business-to-consumer and niche focused, with

some social networks becoming the preferred avenue to reach

certain audiences. Replication of or challenge to Amazon or EBay

models is not anticipated.




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Transforming Triple Digit Growth Rates into Specific Revenue Streams

1) Improve Advertising Pricing by Learning Lessons from Other

Internet Advertisers

Exhibit 34

Lesson 1: Larger ad units generate higher click rates

Source: Doubleclick

Offering a full set of advertising alternatives on social networks

is likely to increase associated revenue by attracting

advertisers to the most successful alternatives. The TV screen

leaves little choice but to watch commercials or completely skip

them. On the Internet, where content and advertising are shown at

the same time, larger banners provide the highest success rate.

Studies on CTR done by Bruner and Gluck (2005) indicate that

larges ads lead to seven times greater click rates than full banner

ads. So far, social networks have avoided cluttering their members'

sites with large advertisements. At the same time, they may be lesseffective in reaching their audiences. Ad pricing should reflect these

differences.

Exhibit 35

Lesson 2: Keywords are really key

Source: Marketing Sherpa

Managing ad space on a site correctly can make a significant

difference in the effective delivery of the message. Exhibit 35

shows an eyetrackingv

heat map from the Marketing Sherpa

Marketing Benchmark Guide 2007. Areas in red show where most

viewers concentrated (first two results obtained). Users paid little or




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Transforming Triple Digit Growth Rates into Specific Revenue Streams

no attention to the advertising on the right side. Also, few users went

below the red line (which marks the screen initial view). Thisindicates that Internet users show little interest in their complete

search results and overwhelmingly concentrate on specific areas of

the screen. The effectiveness of ads placed in other areas is lower

and should be priced accordingly. Social networks owners should

refer to the various heat-maps for their networks and place

advertising accordingly to maximize advertising revenues.

Exhibit 36

Lesson 3: Pricing primetime in the internet

Source: Doubleclick

Selling Internet ads, as with television ads, should take

primetime blocks into consideration. Just as TV audiences are

segmented by time of day, owners of Internet sites should leverage

peak usage times to optimize the pricing of advertising during these

times. In Exhibit 36, daily unique visitors to Yahoo Movies are at their

lowest at the start of the week and expand significantly during the

weekends, creating a primetime audience. In a similar way,advertising on social networks that focuses on teenagers should

have lower pricing during school hours and late evening and higher

pricing in the afternoon.

Exhibit 37

Segmenting Social Networks According to User's Age

Age

Source: PwC

13 18 22 35

Segmented audiences prove more valuable that un-segmented

audiences. Although audience size commands clout and the ability

to be an ad-price setter rather than a price taker, segmented

audiences can also command a premium ad price from thosetargeting the segment. Using the TV analogy, in Exhibit 37, MySpace

would be the equivalent of a national broadcast network and the

other sites would be various cable networks. Additionally, segmented




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g p g p

audiences would probably lend themselves to e-commerce as an

additional source of revenue.

Ads that deliver traffic with higher purchase intent should be

priced at higher rates. Full-page and floating ads create a higher

purchase intent making them more valuable. Social networks should

offer these types of ads and price them according to their higher

value. Exhibit 38 shows the result of a study presented in Bruner and

Gluck (2006) where a full-page ad increased purchase intent 10

times more than a standard banner.

Exhibit 38

Lesson 3: Greater Purchase Intent Requires a Premium

Source: Doubleclick

Beyond the banner: using social networks information to create

advertising features using internal advertising agencies. Socialnetworks owners have opened their sites to companies that want to

register their brand as a "member." Site development for these

brands is usually done by an in-house advertising agency. By July

2006, for example, MySpace had 15 active brand sites (see Exhibit

39). For the most part, these sites were created by the in-house

agency to take advantage of all the network features offered by

MySpace (as opposed to regular stand-alone movie websites that

are not part of a social network).

Exhibit 39

Brand as a MySpace Friend - July 2006

Adidas soccer http://www.myspace.com/adidassoccer

Burger King http://www.myspace.com/burgerkingCingular http://www.myspace.com/cingularstudio

Disney "Pirates of the C http://www.myspace.com/deadmansches

Fox "24" http://myspace.com/24onmyspace

Twentieth Century Fox:Xhttp://www.myspace.com/xmenthelaststa

GE http://www.myspace.com/ellifont

HBO "Entourage" http://www.myspace.com/entourage

Honda Element ht tp: //www.myspace.com/hondaelement

Motorola MotoQ http: //www.myspace.com/motoq

Nike soccer http://www.myspace.com/nikesoccer

Paramount "Failure to L http://www.myspace.com/failuretolaunchPepsi Aquafina ht tp: //www.myspace.com/aquafina

Procter & Gamble Secre http://www.myspace.com/secret

Toyota Yaris http://www.myspace.com/yaris

Verizon http://www.myspace.com/callingallbands

Wendy's http://www.myspace.com/wendysquare

Source: Emarketer




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2) Creating or Increasing Subscription Revenues by Making

Additional Services Available.

Exhibit 40

The Migration of Internet Social Networks to Mobile

Source: Helio website

Upgrading the communications alternatives of social networks

provides an opportunity to tap into subscription revenues.

MySpace members can access the website wirelessly when they

subscribe to Helio or Cingular. This additional communication

channel is an upgrade from website-only access, and MySpace is

pricing it at $2.99 when it is accessed from Cingular. In the case of

Helio, the fee is probably embedded in the higher wireless monthly

subscription fee. Subscription revenue is being collected individually

at Cingular (yet no advertising) or bundled with other services as in

the case of Helio.

Exhibit 41

Use of Mobile Video is Heavily Skewed Towards Younger Gen

Source: Telephia

Users Grouped by Age, % Total

0%

10%

20%

30%40%

50%

18-24 25-36 37-55 56+

Mobile Video All Mobile

Use of mobile video is more widespread in younger generation.

Exhibit 41 show two percentages of total mobile use figures: all

mobile (purple) and video mobile (magenta). For example, 45

percent of total users are between the ages of 37 and 55, while 50

percent of mobile video users are between 25 and 36. Although

users from 18 to 36 are a smaller proportion of the total than those

37 and over, their use of video services is much more important.




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The move from Internet to mobile is complex and entails

negotiations with different carriers. Every social networkinterested in providing a wireless channel will need to establish

partnerships with one or several different carriers (see exhibit 42).

These partnerships are necessary to sort out the technical issues

associated with reformatting the content to fit into the handsets

offered by each carrier and to establish revenue sharing agreements.These agreements can include advertising and/or subscription fees.

Subscription fees could be items

billed to the customer explicitly or

buried in a higher price plan. As in

the early days of the Internet, carriers

want wireless websites to proliferate

because it will ultimately drive the

growth of their wireless data product.

In the interest of preserving the "free"

nature of social networks, revenue

sharing agreements, where social

networks bill their service as part of the

data plan charge (i.e., bundling), might

be the best approach for obtaining

subscription revenues.

Exhibit 42

Migration from the Internet to Mobile Is Dominated by Wireless Carriers

Source: PWC

A worlwide standard with key difference on speed

National, even regional important differences

My

SpaceThe Internet

PC

Screen

PC

Screen

3 or more individual

netw orks depending

on region/country

Content

My

Space

Sprint

Cingular

Verizon

LG

Phone

Moto

Razor

Handset

determined by

carrier

Customization

+ Payment

Social Netw orks

need a critical size

to migrate toWireless

The Internet

SN still depends on the

Internet for (large)

uploads and

ubiquitousness

Unique functionality, such as

picture/video wireless uploads or

updates on friends' activities, are

additional upgrades. Once the social




41/54

network transitions to the wireless environment, successive unique

upgrades can be added to the subscribers menu. The promotion ofthese premium features constitutes an entirely new topic. A

sponsored upgrade, bundles of file uploads at a discount, and other

promotional activities could foster the use of these services.

Downgrading technical capabilities as a way to eliminate

compatibility issues. Yahoo has launched a pure mobile social

network (mixd.com) with the salient feature that the network can be

accessed from any carrier using the SMS system. In essence, Mixd

is creating groups of SMS users and using a website to add the

capability to exchange pictures or videos (recipients get a notification

to go to the Mixd website). Although the idea is attractive because of

its nearly nil implementation costs and cross-carrier implementation,

it seems unlikely that users will be satisfied with a less

technologically advanced solution in a world full of rich-media

sharing and 3G communication speeds.

3) E-commerce Opportunities in Virtual and Real Social

Networks.

E-commerce is not among social networks users priorities. As

shown in Exhibit 43, social networks users surveyed by Bear Stearns

(see Peck (2006)) placed "buy stuff" as a third priority, far below the

ability to have better video and voice communications, which

corroborates some of the ideas discussed in the Strategy section

report. Thismay change in the future. As both needs are better met,"buy stuff" may become more important.

Exhibit 43

Additional Features Desired by Social Networks Users

Source: Bear Stearns

0% 5% 10% 15% 20% 25% 30% 35% 40%

Other

Buy Stuff

Voice

Streaming Video

E-commerce may take the shape of closed micro economies

such as Second Life. With 2.5 million total residentsas registered

users are calledand 550,000 monthly visitors, Second Life has

established itself as the premiere virtual world. Exhibit 44 provides

three key statistics: Linden$ held by residents (L$ is a virtualcurrency L$268=$1US), user-to-user transactions, and economic

velocity. All metrics have increased in the last year, as more

residents move into premium subscriptions, purchase land, and

establish virtual businesses (see growth in virtual land, Exhibit 45).




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Another example of this type of social network is bakespace.com. At

this site, members can build their own virtual kitchens, exchangerecipes, and share other cooking tips. Although the site was

launched only in August 2006, it already has over 4,000 subscribers.

Exhibit 44

Second Life Created Its own Economy

Source: Second Life

Exhibit 45

Sales of Land Are Increasing

Source: Second Life

4) Social Networks' Main Concerns

4.1) Lack of Entry Barriers Threatens the Profitability of the

Business Model

As with any website based on user-generated content and non-

proprietary communication technology, there are few if any



43/54



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sustain their growth rate, as the mainstream advertising buyers do

not shift their dollars due to decency concerns.

Better racy content management is a positive feature for

subscription-based models. Typically, these social networks have

better screening tools for users to provide better control for site

visitors and the ability to select the type of content desired by the

network owner and its advertisers.




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Appendix

Social Networks Analysis Defined

Exhibit 45

Social Network Analysis

Source: semanticstudios.com

Connec

to

Betweennes

Closeness

In its most basic sense, social network analysis is the

representation of relationships. These relationships are

represented as a combination of nodes (individuals) and links

(relationships). Exhibit 45 is an example of a social network and

graphically depicts the relationships among various individuals.

Social network analysis is used to understand the ongoing

dynamics of the particular social group. Three social networks

metrics are commonly used to understand how a particular network

works. In the network shown in Exhibit 45,these are:

a) Level of Activity: Individuals like Susan (center of exhibit) have ahigh activity level. She has relationships with six other nodes, more

than any other member. She is referred to as a "connector."

Connectors play an important role in creating the viral effects

commonplace in social networks because they can essentially

"broadcast" information. The most powerful social networks include

individuals like Susan.

b) Betweeness. Individuals like Claudia (right of exhibit) are the only

connection between the "core" of the network and several other

individuals (only two in this case). This type of individual is important

to the functioning of the network because the network depends on

them for their "exclusive" public.

c) Closeness Sarah and Steven represent the shortest connection

to other nodes on the network. Since information usually travels

through the shortest route, Sarah and Steven have a great

perspective on the information flows through the network.

The dynamics at play inside a social network are a subject of

analysis for the owner of the network. By reviewing patterns of

use among different members, social network managers can do a

better job of expanding the network and controlling information flow

among social network users.



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U

Unique visitor An individual with a unique address who enters awebsite for the first time for some specified period, a day forexample. Thus, a visitor who returns within the same day is notcounted twice. A unique visitors count tells how many differentpeople are in the audience during the time period, but not the extentto which they used the site during the period.

User session When an individual with a unique address enters orreenters a website each day or some other specified period. A user

session is sometimes determined by counting only those users whohaven't reentered the site within the past 20 minutes or a similarperiod. User session figures are sometimes used, somewhatincorrectly, to indicate "visits" or "visitors" per day. User sessions area better indicator of total site activity than "unique visitors" since theyindicate frequency of use.

V

Visit When a web user with a unique address enters a website forthe first time that day or for the first time in a lesser time period. Thenumber of visits is roughly equivalent to the number of differentpeople who visit a site. This term is ambiguous unless the userdefines it, since it could mean a user session, or it could mean aunique visitor that day.




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Sources

Bruner, Rick

The Decade in Online Advertising 1994-2004, DoubleClick.com, April

2005

____ and Gluck Melissa Best Practices for Optimizing WebAdvertising Effectiveness, DoubleClick.com, May 2006

____ and Koegel, Kathryn, Target Demographics Before and After,

DoubleClick.com, June 2005

____ and Gluck, Marissa the Evolution of Rich Media Advertising:Current Market Trends, Success Metrics and Best Practices,Doubleclick.com, September 2005

Center for the Digital Future: Online World as Important to Internet

Users as Real World?University of Southern California, August2006, 8 pages (abstract).

Charron, Chris & others Social Computing, Forrester ResearchFebruary 2006

Global Entertainment & Media Outlook: 2006-2010,PricewaterhouseCoopers, June 2006

Hallerman, David Internet Video: Advertising Experiments andExploding Content Strategies for Market Success, eMarketer,November 2006

IAB Internet Advertising Revenue Report 2006 Second Quarter,

Interactive Advertising Bureau/PricewaterhouseCoopers

Mahaney, Mark & othersThe Outlook for Internet M&A, Citigroup, August 2006

YHOO: Why Yahoo!'s Q3 Challenge May Be Company Specific,Citigroup

Marketing Sherpa,

Business Technology Marketing Benchmark Guide 2006 (excerpt).

www.sherpastore.com

Ecommerce Benchmark Guide 2006 (excerpt),www.sherpastore.com.

Search Marketing Benchmark Guide 2007 (excerpt),www.sherpastore.comPachter, Michael and Woo, Edward, Field of Dreams; An in-depthlook at the adoption of the new interactive entertainment technology,Wedbush Morgan Securities, July 2005

Peck, Robert & Others, Consumer Internet: "Web 2.0" and YourInvestment Mosaic, Bear Stearns, May 2006

Reid, Glen and Urban, Edward, Interactive Entertainment:TheSearch for Earnings Growth in the New Cycle, Bear Stearns, April2006

Williamson, Debra Aho, Social Network Marketing: Carving Out

Some MySpace, eMarketer, August 2006

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Endnotes

iTaking MySpace as an example, this report examines the trendsthat are emerging as users, time spent, and page views all continueto increaseii Viral marketing and viral advertising refer to marketingtechniques that use pre-existing social networks to produceincreases in brand awareness, through self-replicating viral

processes, analogous to the spread of pathological and computerviruses. It can often be word-of-mouth delivered and enhancedonline; it can harness the network effect of the Internet and can bevery useful in reaching a large number of people rapidly. (Source:http://en.wikipedia.org/wiki/Viral_marketing).iiiOwnership of this content depends on how the contract between

the site owner and the user is written. Preferably agreements shouldinclude a clause like "all content submitted becomes property of thesite owner and so on. Alternatively, the site owner could facilitate

the transfer of these rights under a revenue sharing agreement.iv Mobile profiling is the use of information about wireless users,combining both their personal information (available through thecarrier) with wireless positioning (knowledge of the geographicalarea where the user is) to target local, relevant advertising, forexample, high-end clothing stores.v Eyetracking maps measure the frequency with which users stareat an area of a website. The larger the number of users that stare ata particular area, the greater the "heat" map. In Exhibit 35 this occursat the top of the Google search.

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http://en.wikipedia.org/wiki/Marketinghttp://en.wikipedia.org/wiki/Social_networkhttp://en.wikipedia.org/wiki/Brandhttp://en.wikipedia.org/wiki/Viralhttp://en.wikipedia.org/wiki/Virushttp://en.wikipedia.org/wiki/Computer_viruseshttp://en.wikipedia.org/wiki/Computer_viruseshttp://en.wikipedia.org/wiki/Word_of_mouthhttp://en.wikipedia.org/wiki/Viral_marketingmailto:R&[email protected]:R&A%20Feedback%[email protected]:[email protected]:[email protected]:R&A%20Feedback%[email protected]:R&[email protected]://en.wikipedia.org/wiki/Viral_marketinghttp://en.wikipedia.org/wiki/Word_of_mouthhttp://en.wikipedia.org/wiki/Computer_viruseshttp://en.wikipedia.org/wiki/Computer_viruseshttp://en.wikipedia.org/wiki/Virushttp://en.wikipedia.org/wiki/Viralhttp://en.wikipedia.org/wiki/Brandhttp://en.wikipedia.org/wiki/Social_networkhttp://en.wikipedia.org/wiki/Marketing

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