Brave new world online

product of the Web 2.0 boom). The way in which people use the web has
shifted fundamentally and social networking hubs such as MySpace,
Cyworld and Bebo are at the centre of the maelstrom. The growth of
broadband internet access is the single most important factor driving
Web 2.0 because it signals a richer, more interactive experience for
internet users.

Nigel Morris, chief executive of global digital advertising agency
Isobar, says: "MySpace is the new cider. When I was a teenager, the only
way I really found to express myself was through a bottle of cider. What
kids are able to do now is use a MySpace or a Bebo to do that. Social
networking sites are a massive platform for that culture of global
expression."

Since Rupert Murdoch's acquisition of networking giant MySpace for
£333 million in July last year, the sector has continued to grow
exponentially.

Murdoch's investment was just one of many: Yahoo! bought Flickr and has
now launched Yahoo360; Amazon has invested in 43 Things; UK broadcasting
giant ITV bought online networking site Friends Reunited in December
last year for £120 million.

At the time of writing, Viacom is understood to be considering a bid for
Bebo, and Bebo's receipt of $15 million of funding from venture
capital company Benchmark Capital in June this year is just the latest
in a string of investments in social networks by venture capitalists.
"MySpace and Bebo are now the fifth and sixth biggest brands online in
terms of web pages viewed - ahead of more established brands such as the
BBC and Microsoft. Both are harnessing and driving the under-21 market's
appetite for online interaction," says a report from web monitoring
service Hitwise.

Social networking sites such as MySpace, Orkut (Brazil), CyWorld (South
Korea), Faceparty and Bebo are online communities of users that provide
applications for people to build their own spaces on the web. Video,
music and other rich media are all part of the user-generated content
world that people create to represent themselves online and to reach
other users.

The participative media model changes the rules of the game, with people
pulling in media that they want, rather than media owners pushing it out
on them. User-generated content is free for the host platform as it is
created voluntarily by users as a means of entertainment and
self-expression.

There are also huge aggregators of content online, such as YouTube and
Google Video, that bring together both 'edited' content from the outside
world, such as TV ads and clips from films and videos, and 'unedited'
content produced by people and then uploaded. The social networking
model is expanding out of the internet - a few of the social networking
sites, including MySpace, Bebo and Faceparty, are available on mobile
and Viacom's MTV has just announced the launch of Flux, which will see
user-generated content expand on to television.

A quick look at the numbers shows the significance of some of these
networks.

MySpace says that it adds 230,000 new members to its network each day
and is pushing 100 million members worldwide. On 19 July 2005, the day
Murdoch announced he was buying the operator, it had only a quarter of
that user base, with 23 million users. Orkut is the biggest social
networking brand in Brazil, with a unique audience of 8.3 million people
in June 2006 (62% of the active internet population), according to
Hitwise. In South Korea, Cyworld claims that about a third of the
region's 48 million population are members.

So is this the beginning of a boom or a bubble ready to burst? It's
obvious what's in it for the users, but will these new sites make enough
money for their owners to survive? There is a clear benefit to having a
big audience, anywhere, and social networking sites, or companies that
have just acquired them, are now looking for a way to make money out of
these audiences. Janet Goldsmith, co-managing director of media
consultancy Mediatique and former managing director of Universal Studios
Networks, says: "These sites are not necessarily providing commercial
value at the moment, but what they do is give an insight into where
readership and audiences are going because people are going there and
interacting in a different way."

Subscriptions and advertising are the main commercial models through
which social hubs can make money. Subscriptions tend to be less popular
than advertising revenue as a commercial route because online audiences
are used to getting their content for free. In 2002, Friends Reunited
made 95% of its revenues from subscriptions; people had to pay to access
other users on the site. But since then it has developed an advertising
strategy and the contribution of subscriptions to overall revenues has
dropped to 46%. LinkedIn, which is aimed at a more mature business
audience, also relies on some subscription payments from members, as
does Faceparty.

Matt Nash, head of sales and business development at Faceparty, says:
"To create and sustain a Faceparty membership is free, but we also offer
a subscription package called Cool Tools. This is hugely popular with
our members and makes several millions of pounds for the business."
However, Michael Birch, founder and chief executive of Bebo, says that
his service will always be free to users.

Goldsmith predicts: "I think this will prove the funding model for all
of these sites, but whether it is display advertising or a much more
targeted advertising solution, I don't know. Video advertising will be
more prevalent; these things are largely going to be
advertising-supported because people are getting all this content for
free - why should they start paying for it?"

Morris at Isobar agrees: "When you've got lots of people congregating,
then that in effect is an asset. Brands are going to want and need to
become part of that."

It's not only youth audiences who are generating their own content.
Older audiences are also becoming involved and reachable by brands via
myriad sites such as LinkedIn and the job-hunting site Simplyhired.
"While user-generated content is popular among young users, it is
certainly not exclusively their domain," says Heather Hopkins, director
of research at Hitwise UK.

More than three-quarters of visitors to Tripadvisor over four weeks
during July and August were 25 or older, with more than 18% aged 55 or
over.

So far, brands have held back from advertising on social network sites
because they can't control the content and don't want their brands to be
associated with negative or risque entertainment. The traditional online
advertising model of banner advertising is used by most sites and brands
have to be careful how they approach consumers in a more anarchic
environment without alienating them. "Social networking is evolving into
what's called 'engagement marketing', where we engage the user in an
interaction with a product or brand," says Birch.

The amount of personal information held within social hubs means brands
can target their consumers better because they know more about them,
thereby increasing the efficiency of their marketing budgets. The
$900 million deal that Google has just signed with MySpace to
provide search and keyword advertising across the Fox Interactive Media
Network signals the increasing significance of search advertising on
these platforms, due to their targeting capability. "This agreement
demonstrates our commitment to bring the same innovation to monetising
user-generated content that we brought to search advertising," says Omid
Kordestani, senior vice-president of global sales and business
development at Google.

But the more conventional online advertising models aside, there's more
that can be done. "There's a really interesting opportunity for brands
to create their own space in social networking sites," says Hopkins.
"They have to do it very carefully to be sure they're doing it properly.
It means they have the opportunity to engage with their consumers."

Social networks are attracting major advertisers such as Procter &
Gamble, Volvo and NBC. Brands create their own pages on social hubs and
can talk to consumers on a more personal level. Procter & Gamble, for
example, used MySpace to launch Secret Sparkle, a deodorant for
16-to-24-year-old girls and women by linking the product to the home
pages of musicians that used MySpace.

"We have launched an 'Official Groups' section," says Nash at
Faceparty.

"Brands can get involved with Faceparty and access over 3.7 million
16-to-24-year-olds by creating 'Official Groups' with us. Sony BMG has
set up an 'Official Group' in our music section to promote Christina
Aguilera and Pink."

Brands can also create 'skins' that people use to build their pages.

For the launch of Cars in Ireland, Disney Pixar created a skin for
people to use to build their homepage, which spread to thousands of
sites. "Doing sponsored skins is another way a brand can reach out,"
says Birch.

This demonstrates how the content that brands circulate has to be of use
or interest to the consumer. Increasingly, brands are creating viral
advertisements that they then place on YouTube. Users can pass them on
to their friends and the message spreads. A video of Nike-branded
footage of footballer Ronaldinho, for example, was seeded in Spain as a
piece of viral marketing and reached the Orkut community site in Brazil,
from where it spread across the web. It cost Nike absolutely nothing in
media costs, whereas to run the advertisement on TV would have cost
millions.

Social networks also give brands access to the creativity of users,
which they can harness to their own advantage. US retailer Wal-Mart
launched The Hub in July in a bid to reach out to fashion-conscious
youths. The network encourages them to create their own videos with the
lure of the winners ending up on a Wal-Mart TV commercial.

The expansion of social networking applications on to television
increases its commercial potential. Viacom's MTV, for example, has long
had its hand in user-generated content, and MTV Flux allows members to
upload their content on to the TV channel. "Where we're migrating to in
Flux is giving our audiences control over the complete cross-platform
channel," explains Angel Gambino, vice-president of commercial, strategy
and digital media at MTV. "They get to decide not only what the schedule
looks like, but what content is worthy of TV."

Gambino says that MTV hopes Flux will offer new ways in for advertisers
and allow brands to harness the creativity of users; meanwhile, the
broadcaster charges for the texts that users send and is creating
virtual partnerships with retailers. "If a Dolce & Gabbana or a Levi's
comes out with a new pair of jeans or shirt, then you would be able to
buy that within a digital shop for your avatar (a virtual 'you' that
users create online) to wear and you can buy that item for yourself
too," she says.

The possibilities, at this juncture, seem endless and the business
winners in the world of social networks will be those who innovate and
experiment, leaving aside traditional marketing and business models to
embrace this brave new world.

YOUTUBE VS MYSPACE (THREE MONTHS TO 31 JULY 2006)



Share of Daily reach Users/

global internet (per m) members

visits/day

YouTube 3.9% +155% 20m/month

MySpace 3.35% +9% 100m

Source: Alexa, Nielsen/NetRatings.

VIRTUAL MARKETING

Avatars - a virtual alter ego created by computer users to represent
themselves online - are the ultimate consumer group for marketers
seeking new opportunities in cyberspace. The growth in popularity of
online communities and internet forums has provided avatars with their
natural environment, from fantasy settings such as World of Warcraft to
more prosaic arenas such as myspace.com, where members share photos,
journals and interests with other users. In these venues, avatars
effectively operate as idealised projections of their real-life
creators, interacting, engaging and forming relationships with other
avatars. And unlike their creators, their aspirations (and therefore
purchasing power) are virtually unrestrained by real-life inhibitions
such as age, height, weight and attractiveness.

Millions are members of these virtual communities and many already spend
significant sums of money purchasing goods and services for their
avatars, creating a shadow economy of virtual products paid for with
real money.

Secondlife.com, for example, allows its members to make money by
becoming virtual tattooists, tour guides, jewellery makers and wedding
planners.

The website boasts: "Thousands of residents are making part or all of
their real-life income from their Second Life businesses."

But marketers are already exploring how they can take it a step further
by marketing branded goods directly to the avatars themselves. Companies
such as Dolce & Gabbana or Nike could design clothing and accessories
exclusively for purchase in the virtual world. They then may explore
ways of creating links between cyberspace and the real world by, say,
offering vouchers for purchasers of virtual goods that can be used to
obtain discounts on physical products. This autumn, meez.com, which
specialises in helping users create avatars that can be transported for
use on other sites, will launch a promotional code system that will
enable someone who buys a pair of branded shoes in the real world to
automatically acquire a pair in the virtual world.

It doesn't stop there. According to Angel Gambino, vice-president of
commercial, strategy and digital media at MTV, popular avatars have the
potential selling power of celebrities in the real world. "Avatars may
be able to gain sponsorship in the way that film stars and athletes gain
sponsorship," she explains.

An avatar that becomes a cyberspace celebrity will be an obvious target
for brands eager to build on the proven marketability of stars, and
users will be able to purchase the 'loves' (lists of favourite things)
of these virtual celebrities.