Move over, MySpace
Social networking is hot - and there's more to the rapidly growing market than MySpace and Facebook.
NEW YORK (CNNMoney.com) -- When News Corp. bought Intermix Media, the parent of social networking site MySpace, in 2005 for $580 million, some wondered if Rupert Murdoch had lost his mind.
At the time, social networking was considered a business that could turn out to just be a fad; no legitimate company would want to advertise on the profile pages of some teens, right?
Now, nobody questions the move.
In fact, it appears that News Corp. (Charts) got MySpace for a steal, considering that Google (Charts) paid nearly $1.7 billion for video sharing site YouTube last year and privately held Facebook, a MySpace competitor, is said to be asking for more than a billion in a takeover. According to several reports, Facebook was rumored to have been in buyout discussions with Yahoo! (Charts) last year, but those talks fizzled.
Social networking sites like established giants MySpace and Facebook as well as up-and-comers like Bebo, hi5, Tagged and Xanga, to name a few, have quickly emerged as places that marketers are not just willing to target - they consider these ad buys to be absolutely necessary to attract fickle, younger consumers.
Peter Levinsohn, president of News Corp.'s Fox Interactive Media unit, which includes MySpace, said at the Bear Stearns Media conference earlier this month that MySpace has overcome initial skepticism from advertisers and now works with companies such as Microsoft, Citigroup and Procter & Gamble.
"The question used to be, 'Why MySpace?' and now it's 'How MySpace?'" he said.
But even though MySpace gets the most attention in social networking, competitors aren't throwing in the towel.
Joanna Shields, president of the international division of Bebo, a San Francisco-based social networking site that is particularly popular in England, Ireland and New Zealand, said that Bebo is trying to differentiate itself from MySpace and others by focusing more on blogs and profiles, and less on content like video and music.
Shields said Bebo is profitable and that the company is generating a lot of interest from advertisers because of how long the site's users tend to stay at the site.
"Depending on the market, some people spend 90 minutes a session. Imagine how attractive that is to an advertiser. And we're just scratching the surface," she said.
Ramu Yalamanchi, CEO of hi5, adds that social networking is not going to be a "winner-take-all" market. hi5, which Yalamanchi said is profitable and has about 50 million registered users worldwide, is a leading social networking site in several Spanish-speaking nations, including Mexico, Venezuela and Argentina.
"If you look at social networking, the way it's evolving is almost like network television. In any given market, one, two or three particular networks could be big," he said.
And analysts agree that even though MySpace has what seems like an insurmountable lead in terms of traffic and users, that doesn't mean there isn't room for other social networking sites in the market.
"There are particular niche sites with a strong enough demographic that could become quite valuable," said Emily Riley, an analyst with Jupiter Research.
Two that Riley said she finds intriguing are Flip.com, a site catering to teen girls that is owned by magazine publisher Conde Nast, and Multiply.com, which has strict privacy controls and lets people set up networks that can only be viewed by people invited to their group.
LeeAnn Prescott, director of research for HitWise, a firm that tracks Web traffic, adds that music is an important aspect of social networking. Music is a big part of the MySpace experience, but Prescott said that two other sites focusing on music, Buzznet and iMeem, are experiencing rapid growth.
But Prescott said that MySpace probably doesn't have to worry about losing its lead in the social networking arena just yet.
Even though younger Web users tend to be fickle and eager to hop on to a new trend (witness the rise and fall of Friendster, which once was the undisputed social networking market leader), Prescott said that many MySpace users may join new sites but still remain on MySpace as well.
"If you look at profiles on other social networking sites, people actually reference their MySpace pages and provide links to MySpace from other social networking sites. People invest a lot of time and effort into creating their MySpace pages and are not willing to give that up," she said. "Sites that have a unique offering or feature will attract new users, but may only appeal to a certain segment of people. What MySpace has is broad appeal."
Jupiter's Riley added that News Corp. has done a good job of not being too intrusive since it acquired MySpace.
"News Corp. and Fox recognize the importance of allowing people to be alone with their friends so they do not feel like they are being looked at by Big Brother," she said. "They understand how many competitors they have nipping at their heels right now, so they are doing everything they can not to alienate their users."
But as more social networking sites begin to generate real revenue, and not just traffic, that could make them more attractive to larger media firms seeking to boost their presence in the digital world.
"Social networks are establishing themselves in terms of a revenue model. This is an important trend that bears watching," said Jeff Lanctot, senior vice president with Avenue A/Razorfish, an interactive ad agency owned by digital marketing firm aQuantive (Charts).
In addition to Yahoo, which runs the Yahoo 360 social networking site, other big media firms such as Viacom (Charts), Time Warner (Charts) and GE (Charts)-owned NBC Universal have all been boosting their social networking and could potentially be interested in an acquisition. (Time Warner is the parent company of CNNMoney.com.)
Bebo's Shields acknowledged that there is a "lot of curiosity and interest" in Bebo, but she would not comment on whether or not any media firms have approached the company about a buyout. hi5's Yalamanchi also wouldn't talk about whether his firm has received any takeover interest.