Social Networking is almost cliche these days because it’s often overused, duplicated and imitated several times over. However, in light of a few recent acquisitions, I intend to find out how does one define the value of a growing social network?
Let’s face it, MySpace has distribution and equivocally defined social networking as we know it today. The number one social networking Web site; now owned by FOX Interactive Media for a conservative price of $580 million, everyone was shocked by this value when FOX decided to purchase MySpace.
Google was quick to pick up YouTube for the price of $1.65 billion dollars. At the time, critics often said it was an overpriced buyout. However, investors probably disagree since GOOG has been growing confidently.
AOL recently picked up Bebo for $865 million. Many have disputed the alleged benefits for this acquisition, because it’s assumed (by AOL) that it adds 40 million new users to their network — but those users aren’t mutually exclusive from each other. So, realistically, they probably garnered 15-20 million users.
This begs the question — how do you assess the value of a (now) social network?
- Is it Page Views, Unique Visitors, Time Spent?
- Is it the growth trend?
- Is it the user demographics?
- Is it CTRs?
Well, it’s actually all the above from where I stand.
AOL & Bebo: I think AOL got the the short end of the stick — the folks at Bebo couldn’t be happier to cash their check and retire. Bebo is a large social network targeted for mostly minors and has a lot of international strength in EU. The benefit of this Web property is the ability to burn through a lot EU advertising inventory. However, as CTRs drop, so will advertising revenue; users will become fatigued and move on to the likes of Facebook and AOL will be left with an upside down Web property (yet again). You can’t bet on social networks with such volatile audiences. Younger folks will adapt to whatever is hot and I feel that Bebo is already starting to off. (Social Networking in general feels that way to me, though.)
Google & YouTube: While at first, it was very daring for Google to invest in such a non-linear product that is challenging to monetize. YouTube was growing at a rapid pace, with very minimal advertising (if any), which is why analysts fell out of their chair when Google offers almost 2 billion for the property. However, Google was able to syndicate YouTube assets across all of their network, into search results; effectively adding multimedia to their search. This has helped tremendously at driving more search traffic while monetizing viral videos. With the immense growth of YouTube, Google is also driving larger marketing campaigns via traditional marketers. An example of this is Cheetos ‘Orange Underground‘ channel.
FOX & MySpace: The acquisition of MySpace, FOX Interactive Media (owned and operated by News Corporation), has really empowered FOX at driving social media into the mainstream. FOX had been successful at leveraging the social network to drive advertising campaigns for themselves, their advertisers and even celebrities. While somewhat overvalued, they do have a massive audience; adding nearly 100,000 new accounts daily (I wager half those are spammers). For a while product development seemed to be at a standstill, but lately MySpace is refining all their products to mimic other highly-regarded social networks like Facebook. Further, MySpace has been able to avert government control by standing up and making a proactive agreement with 49 state attorney generals to flesh out a plan for maintaining safety on their network (for the next two years).
In purchasing a social network I would look at these factors with the most priority:
- Visitor loyalty, frequency and trending. This would tell me how often users check the site for updates with their friends. It’s okay if it goes down, but what did the company do to make it go up?
- Company Partnerships with 3rd Parties, Syndication, Interaction. If I see a company openly syndicate user content and accept third-party content the users are empowered to interact with each other.
- Monetization. How are CTRs trending? What innovations has the company done to achieve higher rates than the industry? Even if CTRs are low, if I see them going up it reflects that the company is willing to try new things to grow.
- Demographics. Are the users able to influence buying decisions? Can they buy things themselves? … How diverse is their user base? It would be more difficult for me to sell high margin ad inventory if the users aren’t able to do any actions in the ad.
These are just some factors that matter when determining the value of a social network; while contrasting that with examples of some successes (and blunders) in doing so. I wanted to share my feedback on this decision and hopefully help you if you are venturing into the business of flipping social networks.
These aren’t all the factors, so if you have any additions, share what you find as important in the comments!