Friday, February 15, 2008

Broader and bigger is not necessarily better

By the end of 2007, global active memberships in social network sites were expected to hit 230 million. Experts expect this growth to continue through 2008, peak in 2009, and then level out in 2012. Furthermore, it has been calculated that revenue generated from social networking sites will reach $965 million by 2007 and grow to an estimated $2.4 billion by 2012.

Currently the social networking market is dominated by MySpace (consisting of 57MM US members or 45% of US social networking members) and Facebook (consisting of 22MM or 17% of US social networking members) who comprise 62% of the US market.

Given that MySpace and Facebook have a virtual choke hold on the marketplace, and experts. Given the strength of MySpace and Facebook, experts believe that social networking will continue to grow and maintain its momentum; the opportunity in social networking will be in vertically aligned niche sites that have specific audiences and a specific mission. These vertically aligned sites will need to integrate into the more broad-based sites like Facebook and MySpace, thus using these as a platform and not an end result.

I think the reason for this is that broad social networks like MySpace and Facebook are so big and so general; it is hard for the user (let alone the advertiser) to find the type of content that is really compelling to them. Sure, there are search capabilities on the networks and people create groups, but the overall sites have so much content and such a broad basis simply due to the number of people on the social network that specific vertical niches often get lost, which inherently de-values the impact of the people within those niches.

A vertical niche can be very powerful as well for advertisers as it provides them with a much higher quality lead as they have already shown an interest in the advertiser’s market. In these cases, I believe advertisers should not be so hung up on the pure numbers, but rather the type of content and the crowd effect of having ALL the members interested in the same topic.

For instance, my family is a horse family. My wife rides, my daughter rides, my sister-in-law trains horses, my mother-in-law owns a tack shop, and my father-in-law is on the board of the Texas Hunter-Jumper Association. All of this and I am severely allergic to horses. So I could be a part of my family’s passion, I decided to do something I know about, I started a social horse network (not going to plug it though as this is not the point).

The site was meant more as a hobby and to potentially connect a few horse enthusiasts (try not to say horse lovers as that brings some very unusual sites to the top of the list on Google). However, with nearly no budget, the site has grown to be 1100+ members in just a few months. Most of these come from Facebook as they were made aware of the site via some very cheap ($5/day) advertising and a Facebook application. Now my users spend more time on my horse network than they do on Facebook (according to the members). The reason for this is that the site is totally dedicated to their passion, which should be the highly motivating to advertisers.

So, from my perspective, going out and trying to compete with a Facebook or MySpace is a stuff chore these days, however, if the social network is vertically aligned and narrowly focused, there could be a lot of room for growth in the network.

1 comment:

allen smith said...

This idea seems to ebb and flow with the years. Back in the late 90's it was in vogue to say that (what social networking was called at the time) online community would continue to grow into ever thinner niche slices...until we got to the point of horse-enthusiast communities. And then that went away and we got MySpace...and Facebook (which actually started out as a niche college focused community before it shifted to be a social networking platform). Maybe as hobbies, these niche communities can survive but unlikely as a business. The challenge with a niche community is that they're usually so niche, the cannot generate any critical mass. And while I may be a horse enthusiast, I may also like Radiohead and mountain biking and oh, by the way, I'm a Big Ten alum and I would really like to connect with all those different people too. But do I really want to have multiple memberships in different communities? Probably not. It's probably easier for most people to simply be a member in one of the giant communities and subscribe to niche groups...or email lists from separate providers.

Ultimately, critical mass will win out because of: 1)the network effect ( each new member adds value to the network in a nonlinear fashion); and, 2) people are multidimensional and belonging to too narrowly focused of a community pardon the pun...a one-trick pony and not as interesting as belonging to one that can satisfy all of my interests.