Battle of social-networking sites

Nick Clark: Facebook's value has fallen a third in 18 months and many of its rivals are also struggling - but not all. Who's up and who's down?


Facebook: Down

Mark Zuckerberg, the 25-year-old chief executive of Facebook, this week spoke of his delight at securing a $200m investment from Russian group DST. He was unconcerned that the stake valued the company at $10bn, a third lower than 18 months ago, and said the cash injection would help investment for the future. The social-networking site is still growing at a huge rate, but this latest cash injection fuelled concerns that the firm hasn't found an effective way to make its users pay. There are now over 200 million Facebookers, with 70 per cent of those outside the US. It had 29.2 million users in the UK last month, up 9 per cent year on year, according to marketing communications analyst ComScore.

The drop in valuation tracks the wider market, where Google's share price has dropped over a third in the downturn. Yet Mr Zuckerberg's dislike of banner advertising and a fall in the general ad market will put pressure on a company whose burn-through rate has been estimated at above $100m a year. The group's CPM, the cost an advertiser pays for every thousand views, is in cents rather than dollars. Dan Cryan, senior analyst at Screen Digest, said: "Facebook is pretty much a communication tool, but the ad tolerance from consumers for such sites is not particularly high." The group is building its self-service advertising system and eMarketer estimated ad revenues would be $230m this year.

Facebook says ad revenues will be up 70 per cent this year, but as its cost base grows and click price falls it could face pressure. The site is yet to turn a profit, but Zuckerberg did say it would be cash positive next year. Adam Daum, research vice-president of Gartner, said: "In terms of reach and audience engagement, they're doing a fantastic job. In terms of making the thing pay, they have been struggling somewhat."

MySpace: Down

Analysts have warned that MySpace profits face severe pressure over the next 12 months. Users are falling, ad revenues are subject to the wider market decline, and the end of a lucrative ad deal looms.

The group, which was bought by Rupert Murdoch's News Corporation for $580m in 2005, has marketed itself as a social portal rather than a social-networking tool, as users upload content including music and videos. "Users are more tolerant of advertising in this context, and it should be easier to monetise," Mr Cryan said. He added that MySpace's tactics has been to set up local offices, to focus on local advertising sales, which has proved successful. Yet its advertising revenues will fall 15 per cent to $495m, eMarketer said, and advertisers will be paying close attention to the slide in user numbers, which could well intensify. Unique users were down 18 per cent in the UK last month to 6.9 million from 8.4 million the previous year. It has also declined by a million in the US to 63.2 million.

MySpace is understood to be in profit and generated over $800m in revenues last year, but this could change, especially as the company's costs have been estimated to run at $500m a year. One expert said the site's returns were propped up by a three-year advertising deal with Google worth $900m, which comes to an end in 2010. "It is profitable today but could struggle to maintain its profits as Google has said it doesn't intend to renew the contract," Mr Daum of Gartner said.

He added that MySpace could look at charging for certain content such as downloading songs or videos through the site, or even allowing other retailers to set up sales links to sell goods.

Friends Reunited: Down

Friends Reunited has gone from trail-blazing social-networking site to an also-ran in only 10 years. ComScore found that the group lost almost a quarter of its unique users in the past year, falling to a total of 1.8 million in April.

The future is uncertain for the flagging brand, as parent company ITV looks to sell it just over three years after it paid £175m for the site. While the auction has attracted some interest from buyers, the broadcaster is unlikely to recoup much more than £40m.

Friends was started by husband-and-wife team Steve and Julie Pankhurst in 1999. The site used a subscription model and flourished before free-to-use rivals started cannibalising the business. The group admitted defeat cutting the subscription last year, but the site has never fully recovered.

Hi5: Up

Hi5 may be relatively unknown in the UK but it is still more popular than recognisable sites such as LinkedIn; although it has found user numbers declining a fifth in the past year.

The San Francisco-based group fared better in its home market, rising a third to 3.5 million users, but its real strength comes in its appeal to its Latin American audience.

Hi5 was founded in 2003, following a seed capital investment of $250m, and was profitable in its first year. It then raised $20m from Mohr Davidow Ventures in July 2007 to boost its size. It was the first site to tailor content according to the country of its users – 80 per cent of its audience is outside the US – with translations into over 40 languages and dialects. It has been especially successful in Spanish-speaking markets. The group's revenue stream comes from partnerships in local jurisdictions and targeted advertising.

Twitter: Up

Twitter has made the most noise in the social-networking industry this year. In April 2008 it had 62,000 unique users in the UK, which has soared almost 40-fold to 2.4 million this April. Tweeting has also taken off in the US, rising from 479,000 unique users to 15.7 million, as people express themselves in no more than 140 characters.

The problem for the business is the lack of a revenue stream at the moment; and the founders have been reticent to sketch out the details of their business plans. The firm's co-chief executives, Biz Stone and Evan Williams, have admitted that it is not the best tool for advertising revenues, and so far have decided not to plaster the site with banner adverts. "I think it's probably the least interesting thing we could do," Mr Williams said yesterday. They think that targeting businesses is the way to generate profits. The company is planning to launch tools aimed at corporate clients later this year but details remain at a premium. "Twitter has been enjoying its place in the sun, although the long-term profitability is less clear," Screen Digest's Dan Cryan said. The group is still in its infancy. It has 46 employees, and said it is just getting going. It has repeatedly said it is not for sale, after turning down an offer from Facebook last year. The $35m funding it secured this year has also given it breathing room.

Adam Daum at Gartner noted other potential business models. "The sites could offer themselves to businesses as a research tool, relaying what users were saying about their products, and general insights, although that could raise privacy issues." He said that Twitter could also license its technology to businesses, should they want to develop their own internal social "intranet".

The group has another problem beyond its lack of revenues, in that many of its new users give up on the site within a month. Nielsen Online found that 60 per cent of new users were not using the site the following month.

Linkedin: Up

Linkedin is smaller than many of its rivals here, but it boasts one benefit the others can't: a captive audience of business professionals. The group has private equity backing after a consortium including Bain Capital took a 5 per cent stake which valued the group at $1bn.

ComScore's latest figures show that the unique users have more than doubled in the past year to 880,000 in the UK. It has a model of charging for premium parts of the site. Users can sign up for free, but for certain professionals, such as head-hunters who use the service, a fee is charged.

The group, which is also based in California, said it has 41 million members worldwide, and its members include executives from every single Fortune 500 company.

Adam Daum at Gartner said the model worked because the group must benefit from better advertising revenues than its rivals. "The advertising rates should be dramatically higher than a generic network, because of the professionals who will see the adverts on the site," he said.

LinkedIn has prospered during the credit crunch in terms of users, partly because those who have lost their jobs see it as a good way to get their CVs in front of potential employers. It is run by Reid Hoffman, an entrepreneur who has invested in Facebook and Digg in the past.

Bebo: Down

Bebo has shrunk more than any of its major rivals in the UK over the past year. The network's users have fallen from 12 million in April 2008 to 9.1 million last month. This is bad news for a site that has done well this side of the Atlantic, but struggled against the bigger players in the US. It has more than doubled its American users in a year, but at 9 million, lags in fifth.

This is despite the prominence of parent company AOL in the US, which bought the group for $850m last year. Bebo has styled itself as a social portal similar to MySpace. The problem, some industry experts warned, has been knocking the incumbent off its perch.

Bebo was targeted at a specific demographic, mainly 13- to 19-year-olds, "which doesn't appeal to all advertisers," Mr Daum said. However, Bebo is hoping to broaden its appeal. AOL has not released recent profit numbers for the group, but rumours have dogged the division of underperformance.

As with many of its rivals, Bebo is not expecting revenues to grow in the downturn and is banking on building up its audience.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Life and Style
A monstrous idea? Body transplants might no longer be science fiction
Science An Italian neurosurgeon believes so - and it's not quite as implausible as it sounds, says Steve Connor
Sport
Demba Ba (right) celebrates after Besiktas win on penalties
footballThere was no happy return to the Ataturk Stadium, where the Reds famously won Champions League
Arts and Entertainment
Natural beauty: Aidan Turner stars in the new series of Poldark
arts + ents
News
Mia Freedman, editorial director of the Mamamia website, reads out a tweet she was sent.
arts + ents
News
people
Arts and Entertainment
The write stuff: masters of story-telling James Joyce, left, and Thomas Hardy
arts + ents...begging to differ, John Walsh can't even begin to number the ways
Sport
Jose Mourinho on Sky Sports
footballEXCLUSIVE COLUMN Paul Scholes: It was not a leg-breaking tackle, as the Chelsea manager had claimed
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Telesales / Marketing Executive - B2B - OTE £25,000

£17000 - £25000 per annum: Recruitment Genius: An opportunity to join this new...

SThree: Trainee Recruitment Consultant

£18000 - £21000 per annum + OTE £45,000: SThree: SThree Group have been well e...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Recruitment Genius: Business Control Manager

£36000 - £44000 per annum: Recruitment Genius: Encouraging more businesses to ...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower