Telecom Carriers Seek Ways to Monetize Social Networking
May 2007
The average user of a social networking site spends 59 minutes per day chatting, finding dates and engaging in other media- and profile-based interactions. Little is known, however, about the profitability of today’s social networking powerhouses. For example, News Corp.’s MySpace, the leading social network, has not had to reveal its actual revenues. Also, while people are loyal to the social networking phenomenon as a whole, it is difficult to gauge how loyal to each site individual users are. What’s not in question is that social networks are quickly joining the mainstream. As they continue to grow, service providers are looking for the right ways to monetize these successful service models and leverage any advantages they may already have. Socially Significant Skeptics once thought social networking communities were a fad, but now they look like the portals of the future. Sites like MySpace, Facebook, Flickr, Bebo, Hoverspot, Rabble and Friendster are social phenomena that have changed interpersonal relationships and are entrenched in the common lexicon. They serve as consolidation points for communication in a world cluttered with devices, channels and media types. They also allow users to keep their virtual selves in constant contact with friends, family and communities of interest. The portal heavyweights like MSN and Yahoo! are taking notice. Each has begun to organize its applications around social networking to avoid losing critical “favored-site” status to players like MySpace. MySpace itself owns 80 percent of the social networking market, offering a combination of e-mail, instant messaging, blogging, job listings, videos, books and music. According to ComScore Media, MySpace’s monthly traffic figures have outgrown those of MSN and AOL and are roughly 75 percent of Yahoo!’s numbers, which is still the top site on the Web. Hitwise, an online intelligence service, contends that visits to the top 20 social networking Web sites increased by 11.5 percent from January to February, with the largest increase in visits logged by upstart sites Buzznet (up 148.4 percent), and iMeen (up 145.7 percent). With the proliferation of these sites, social media aggregators have also emerged. Sites such as SocialURL could further increase interactivity by enabling people to add usernames to groupings of community sites, thus enabling people to create huge networks of friends and work contacts. That means the same user profile could appear as embedded media on numerous sites. Social networking also is merging with other entertainment genres, such as gaming. Sony’s PS3 Home, for example, will open its customers to a virtual 3D world in which they can customize the look and feel of their virtual selves including choosing gender, physical attributes and clothing. Users will be able to socialize with other gamers who want to chat and watch virtual movies in social environments. Mobilization With increasing linkage between mobile and Internet services, niche mobile operators are just beginning to bring the major social networking communities into a mobile format. Whether the mass market would pay a premium to mobilize social networking is an unanswered question. The operators in the lead focus on the youth market. Statistics show that the average user checks his favorite community site 10 times a day. That means he has to wait until he’s sitting in front of a PC before he can send text messages, instant messages, photos and
videos to his friends. Dom Tolli, vice president of value-add services for Virgin Mobile USA, is betting that people will pay for the chance to stay connected to their social networks at all times through their mobile devices. Tolli says that Virgin’s 4.6 million customers want to do more than just surf their favorite social networking sites anchored to a PC. A company surveyed showed that 63 percent of customers under the age of 35 have a profile posted on one or more social networking sites, and 92 percent of them check those sites at least once per day to see friends’ messages, comments and photos. Earlier this year, Virgin Mobile USA signed an agreement with Facebook that will allow Virgin’s 4.6 million subscribers to use Facebook’s mobile-enabled site. They will be able to view profiles, photos, lists of friends, messages and contacts. The company said that additional interactive features would be in place by April, including the ability to update profiles, search for friends and send messages. Customers will be charged fees in addition to air time and web browsing charges for using these services. Similarly, SK Telecom-owned Helio’s youth market offering advertises anytime access to “MySpace action.” It also complements that access with features like its “buddy beacon” which alerts users when friends are near. Helio and Virgin are both succeeding in the prime market for social networking – youth. The question is, will the model translate to a broader range of mainstream and niche audiences? For that to happen, social networks will have to move beyond one-off agreements to a more open model. Social Networks, Anti-Social Interfaces Most agree it is inevitable that online social networks will have to open up their services for integration with third parties if they are to sustain their business models and growth. eBay went down the same path, and now 40 percent of its listings are posted on Web sites other than its own. For eBay, the choice resulted in billions in new revenue. Similarly, tens of thousands of developers have incorporated Google Maps into thousands of outside Web sites that attract extra traffic by offering directions to restaurants, theaters and other social venues. The more Google branding pops up on Yelp as people search for restaurants, the more revenue Google collects from its advertisers. Facebook may be the first social networking giant to open up its services. The company has a developer program coming out of beta testing. It is gauging how many hundreds or thousands of applications might come out of the developer community if it should open up its APIs. News Corp.’s MySpace.com, Google’s orkut and LinkedIn would likely follow, if Facebook or any other significant player showed an advantage in being open. Advertising Revenue Brand marketers are already aware of the power of social networking. According to Jupiter Research, 48 percent of them plan to use social marketing tactics in the coming year, as compared to 38 percent last year. In another study, research firm eMarketer predicts that advertising on social networking sites will reach $865 million this year and nearly $2.2 billion in 2010. If a MySpace wanted to provide a value-add to its customers, an option of mobility would create stickiness for them. But how would mobile operators generate revenue from the relationship? If social networks largely earn revenue from advertising, they would have to pay mobile operators a portion of that advertising revenue for adding mobility’s value to their services—assuming it helps generate more business. Tole Hart, research director for mobile devices and consumer services for Gartner Inc., suggests that revenue sharing agreements could be created based on whether “links to a community page from a cell phone generate more sales. Or, if carriers get users to link to a community page on which there is an advertiser.” Yet carriers seem to have a real chance to grab a bigger piece of the pie and to compete with Yahoo! and Google, he says, “because they control the mobile handset and they own the broadband networks.” Telecoms Can Go Their Own Way “Rather than rally around a MySpace, who will ultimately steal users, carriers should be partnering and building their own communities,” says Frederick Ghahramani, director and founder of AirG, which provides
mobile community solutions for mobile operators. He argues that operators already have strong enough brands and “enough subscribers around whom they can tailor-fit a value proposition” that will give them more reasons to use the network. He notes that Boost Mobile recently partnered with West Coast Customs to launch a campaign involving a “pimp-your-ride” contest. It succeeded in driving users to its “Hooked” community, where urbanites interact with like-minded urban people. In 90 days, Boost had over 1.5 million entries to the contest. “They gave more people a reason to congregate around their brand,” says Ghahramani. “A carrier-owned site can compete with a MySpace, because you own the site, the customer and the revenue,” says Chris Couch, chief marketing officer for Ace*Comm, which is focusing now on personalization applications that will allow carriers to develop and manage social networks. Ultimately, having knowledge of customers, what they do and how they spend is one of the biggest chips telecom service providers will bring to the content table. They have a gold mine in terms of coveted demographic and personal data that can provide a major advantage. Hart suggests that carriers could sell information about their customers “in an anonymous manner” to advertisers and content developers. Operators can then target and push promotions to those specified groups of subscribers, he says, and “have the charges for any click-through purchases go directly to their mobile phone bills.” Carriers can also add greater value to social networking services by offering the look, feel and services of multiple sites on their handsets. Behind the scenes a company like Rabble would integrate the APIs of multiple sites on the carrier’s behalf. “You can have a single Java application on a handset that links to different communities and lists,” says Derrick Oien, president of Intercasting, the parent of Rabble, the first mobile blogging and social networking service for mobile operators. “The idea is cross-community networking,” he says, “where people can share common interests and communicate across all platforms.” As consumers participate in their social network offerings, carriers can gather added customer usage and behavioral data based on real customer choices and preferences. This information can in turn be used to justify increased advertising prices or greater revenue share for the most popular services or sites. It also can be used to personalize offerings on an ongoing basis. Personalization and User-Pay “Telecom missed the Internet boat completely because they didn’t personalize and they didn’t believe in the user-pay model,” says Brian Milton, senior vice president of business development for Jumbuck, the largest mobile social network in North America. Milton started Jumbuck Island after 20 years in telecom, and now more than 15 million mobile subscribers go there. Jumbuck Island combines real life with virtual life in a “multiplayer” chat room application that incorporates the look and feel of the virtual worlds now popular in multi-player, online games (see “For Online Gaming, Telcos Carry More Weapons Than Just a Fast Pipe,” Billing World and OSS Today, March-April 2007). Users create customized characters representing themselves and can go sightseeing around the virtual island, flirting and chatting with other characters along the way. According to Milton, Jumbuck has experienced 20 to 30 percent growth every month because of its user-pay model. Carriers have taken notice, as major mobile operators from AT&T to Vodafone now offer the service. Jumbuck provides the content, and the mobile operators bill users on its behalf—usually with a “data” field on the bill identifying the content for which the subscriber is paying. “We have what we call ‘what-the-hell’ pricing of $2 or $3 per user so as to attract people to the application,” says Milton. He explains that his company doesn’t carry the infrastructure costs for billing and customer care and takes 20 to 40 percent of the revenue it generates, whereas the carriers keep 40 to 60 percent. Carriers also benefit, he says, because of the extra airtime the application drives. Milton believes operators are well-prepared to bring content onto their mobile decks because they “bit the bullet and established the billing back end to accommodate data- and usage-based billing.” Most carriers thus far have chosen ASP solutions to test the social networking waters. These ASPs simply consolidate existing infrastructure like SMSCs, Java downloads, WAP browsing and other existing real estate. Sprint Nextel, AT&T, T-Mobile, Verizon and many others have all opted ASP solutions thus far. Milton argues that the next step is to provide specialized content and personalized services that offer an
experience different from what the Internet can provide. He says the user-pay model will continue to be the money-maker as long as carriers “don’t charge an arm and a leg, and make access as easy as possible.” Keeping It Simple Most operators are trying to make their services and devices simpler so that there are no unnecessary barriers to usage. “People don’t want to read instructions,” says Beverly Wilks, director of marketing for mobile messaging company OZ Communications, “so operators have to embed the application on the phone so they can make choices with one or two clicks.” OZ has helped a number of carriers—including Bell Canada, Sprint, Alltel, and others - to mobilize email and instant messaging services from MSN, AOL and Yahoo!. The company will extend these capabilities to social networking portals and also plans to enable access to multiple social networks from the same OZ client. OZ’s service, along with YouTube, is already available to MySpace users who have specialized phones from either Helio or MySpace’s new mobile division. At this point, mobile operators have begun to consolidate navigation so that just a few button presses deliver users to the content they want. Verizon Wireless, for example, presents short commands, such as “Get it Now,” “Tunes,” “Flix,” or “Get Apps” to drive people to its content store. The company is also adding a Windows-type interface for accessing the Internet with their mobile devices. AT&T is building a portal where subscribers can customize their “deck” according to their content favorites. The goal for carriers and operators is to create new revenue streams based on social networking service models. To differentiate they must add value that existing social networking leaders cannot easily match. While that value includes things like mobility and consolidated access to multiple channels, in the end it is the ability to generate information on customer behavior, account for usage, and bill for and collect revenue for any service that will give telecom providers their biggest advantages.