Andrew Walmsley on digital: Social interaction is key to web 2.0

radio station has ensured that only those with very deep pockets could
afford to participate, because building distribution and an audience
took a long time.

The internet has challenged this. The capital cost of setting up a
website is a fraction of that required to create a newspaper. New
business models based around revenue-sharing have enabled those without
access to marketing budgets to secure distribution across a wide swathe
of the web and build an audience quickly. Sites such as Yahoo!, MSN and
Google are not simply the biggest websites in terms of audience, they
are among the biggest media properties in the world.

Back in 1998, Geocities was the third-most visited website. It allowed
people to manage their own web page, adding photographs, their favourite
bands, films and commentary. Yahoo! bought it in May 1999 in a deal then
valued at $3.6bn. This was a good price, even for bubble time,
yet we have not heard much from Geocities since, although it is still
there.

There is something different about My-Space and YouTube, though, that
makes them worth the money being thrown at them: social networking.

Unlike Geocities, where creating a webpage was a largely solitary
affair, sites such as Bebo, MySpace and YouTube allow users to share
their work with others, connect their page with friends' pages, leave
comments and see when they are online.

This ability to share and connect with other users is the defining
characteristic of web 2.0, and it is a global phenomenon. Mixi, the
so-called Japanese MySpace, debuted on the Tokyo stock exchange last
month, valued at £1bn.

In South Korea, where broadband connectivity is about 70%, social
networking has become a national obsession, with a set of social codes
evolving that govern behaviour on Cyworld, the Korean version of
MySpace. It is considered rude in the extreme to visit someone's
Minihompy (Cyworld's term for a homepage) without leaving comments, and
real pride is taken in how you decorate it.

Deutsche Telekom has partnered with Cyworld to launch in the German
market, and it has ambitious expansion plans.

Finally, believe it or not, Dogster (a social networking site for dogs)
and Catster (I know, I know) have just secured a round of angel funding
to develop their sites further, although they claim already to be
profitable.

Around the world, while the applications and customs within these sites
might vary, the empowerment of people to connect with each other and
share their thoughts, photos and videos has proved an extremely potent
formula.

YouTube sees 65,000 videos uploaded a day, and about 100m video plays -
and it is this audience that has made it such an attractive proposition
for Google, whose Google Video proposition had failed to gain
significant traction with audiences.

If YouTube can address the prickly issue of copyright material being
uploaded to the site, and thus avoid a lawyers' feeding frenzy, this
could be a great deal for Google. The bigger issue on the valuation is
the loyalty of the audience.

If a site can grow in 18 months to these levels of traffic, then it can
happen again. But if the audience moves on, that valuation is going to
start to look a little salty.

- Andrew Walmsley is co-founder of i-level

30 SECONDS ON ... YOUTUBE

- Launched in February 2005, YouTube was founded by ex-eBay PayPal
workers 29-year-old Chad Hurley and 27-year-old Steven Chen. It now has
67 employees.

- In August 2005 the site had 2.8m users a month. One year later its
audience had grown to 72m people.

- YouTube attracts 20m unique visitors a month, according to Nielsen Net
Ratings.

- The site has a 47% share of visitors to online video sites, according
to HitWise, while MySpace Videos has 22%.

- YouTube claims that fewer than 20% of its video views come from
MySpace, although News Corporation chief operating officer Peter Chernin
told investors recently that 60%-70% of YouTube traffic comes from
MySpace.

- Google and YouTube have struck a series of deals with media giants
such as Universal Music, Sony BMG and CBS, giving them some of the
rights they need to show videos.