People power drives the new internet revolution
Sunday 04 June 2006
The internet has been around for only around 15 years, but already it is on the brink of a second revolution.
No less a figure than Sir Tim Berners-Lee, credited by many with the invention of the web, told the recent WWW 2006 conference in Edinburgh that developments such as blogs, "wikis" (sites such as the online encyclopedia Wikipedia, which allow users to edit content) and community websites are transforming the internet. And it is no longer the big names - Microsoft, Yahoo! or AOL - that are in control.
Instead, what has been dubbed "Web 2.0" will be driven by members of the public swapping messages, photos or videos and writing their own blogs. It is a phenomenon that big business is struggling to understand, let alone control. And these sites driven by consumers and communities are some of the fastest-growing on the internet.
According to the market research company NetRatings, visitors to the community website MySpace have tripled since its purchase by Rupert Murdoch's News Corp, for $580m (£310m), last July. MySpace and its competitor, Bebo, were the fifth and sixth most-visited sites in the UK in April, ahead of the BBC. Wikipedia already has more than a million articles in English alone.
These sites pose a threat to conventional media companies as well as to online players such as Yahoo! and Microsoft's MSN, by drawing away both audiences and advertising revenues.
"For the mainstream media, the risk is that these sites will take away their eyeballs," says Jaap Favier, a new media specialist at Forrester Research, the industry analysts. "People such as Murdoch want these sites for their potential to carry advertising as well as to cross-sell other media products."
Yet few of the next-generation websites have proven business models. Most are either free or charge a nominal fee, such as the £5 a year levied by the UK's Friendsreunited. Something will need to give if social networking sites are to remain free or cheap to access.
"If you look at search [engines] seven years ago, search was a loss leader," says Michael Birch, founder and chief executive of Bebo. "Then Google's Adwords came along. Today we carry banner ads but that could change, in the way that advertising on search engines has changed."
Mr Birch says that Bebo is looking at sponsorship, or even product placement. But the most effective business model of all might be to build up an audience and wait for a media giant with deep pockets to buy you out.
Given the rate at which social networking sites are expanding, an acquisition could be the only practical way for established media players to enter the space.
"Large companies will go where the advertising audience is," says Paul Lee, director of telecoms, media and technology research at Deloitte.
News Corp is not alone in investing in the area, however. Last year, for example, Yahoo! bought Flickr, a website that lets users share their photos. The price tag is rumoured to have been $30m: far less than what News Corp paid for MySpace but still a large sum for a niche service. In the UK, ITV bought Friendsreunited for £120m.
Bebo remains independent, but has attracted an investment of £8m from the Irish venture capitalists Benchmark Capital. YouTube, a popular video-sharing site, is reported to be discussing partnerships.
Despite the pioneering origins of this "second internet revolution", it is inevitable that the most popular websites will be gobbled up by the media giants.
But one site that many companies would like in their portfolios is unavailable. Wikipedia, run by the Wikimedia Foundation, a not-for-profit organisation, is certainly not for sale. Maybe the media giants won't be getting it all their own way in the new online revolution.
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