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MySpace, My Teens, and MyYearbook
We have not invested in a teen oriented social networking business. Clearly a missed opportunity with the MySpace and Facebook phenomenons staring us in the face. Here are the stats on these two juggernauts from May's Media Metrix:
My Space 51mm unique visitors (#7 in the US) 29.4bn page views (#2 in the US)
Facebook 14mm unique visitors (#49 in the US) 6.5bn page views (#7 in the US)
That's mindblowing to be honest. Two of the top ten page view generators in the US were built in the past two years on the backs of teen/youth social networking.
We were not offered the opportunity to invest in either company so they won't make our "anti portfolio", but my hat is off to the VCs who did invest in these two companies. Very well done.
So the question is what to do now? I can't help but watch my two teenagers as I think about this sector. Both are active page view generators on MySpace and my older daughter is doing her part generating page views at Facebook's high school service as well.
These kids are fickle. My older daughter has mostly moved her activity to Facebook because she likes the affiliation with her school and the other schools in the city where she knows kids. She thinks it better looking (and so does Ben Barren).
So I expect to see churn in this market. But it certainly doesn't appear to be hurting MySpace or Facebook right now. The question is can a new entrant capture significant share, taking advantage of that churn. And can they keep it?
Take MyYearbook, which is trying to compete with the high school part of Facebook. According to Media Metrix, MyYearbook had 3mm unique visitors and did 69mm page views in May.
Is that "traction" to use an overused word? Or is that noise? The UVs represent almost 25% of Facebook's UVs, so it's something to notice. But the number of PVs is only 1% of Facebook's.
So I am not sure. What do you all think? I'd be particularly interested to know how many high school profiles Facebook has compared to MyYearbook or anyone else in the high school social networking sector.
My sense is this space is too fickle for us, but it's fascinating to me nonetheless.
Comments (14) | Posted June 15, 2006 in Venture Capital and Technology
Comments
Here's a sign of the times for you. My daughter, who is 14, and her friends were talking about another girl and her boyfriend.
Apparently the girl was very excited because the boyfriend had changed his Facebook status from "single" to "committed releationship"
Posted by: Jason Chervokas | Jun 15, 2006 8:52:39 AM
I think the SOCNETS face the same dilemma - generating revenues from what is essentially a communication tool -- think a cell phone with HTML and a larger screen. The youth generation spends hours per week pecking text messages into their phones, however U.S. phone carriers won't dare placing ads in that medium. SOCNETS are in the same boat, although the advertising tolerance in the online arena is admittedly broader. Among them, Facebook will have the toughest time turning PVs into dollars. The site is the least commercial among them and changing the culture of the site is a risky proposition. Besides, basing any business on national ad dollars alone is a recipe for disaster. My 2 cents is that these SOCNETS are only valuable within the framework of a broader network of content offerings. Expecting them to generate big revenues and profits directly, is a pipe dream. I think Newscorp is on the right track by using MySpace as yet another vehicle in its online fleet.
Posted by: WTL | Jun 15, 2006 11:04:59 AM
Fred, why don't you focus on baby boomers? Or soccer moms? I don't understand this fixation on teens. Follow the money! :)
http://en.wikipedia.org/wiki/Baby_boomer
http://en.wikipedia.org/wiki/Soccer_moms
Posted by: Dimitar Vesselinov | Jun 15, 2006 1:44:07 PM
I have to respectfully disagree with WTL. I think very large social networks will make plenty of money. Their conversational nature will turn out to be their biggest asset as more and more transactions become conversational in nature. The revenue will be generated by adding context to the conversations. Facebook and MySpace are well positioned to make serious money by generating leads via these context-specific conversation -- whether it be for apartment rentals, jobs, or even straight-up search leads. There is a rumor going around that Firefox made between $30mm and $70mm from forwarding search requests to Google last year. The number of MySpace users has to be *well* beyond the number of people actively using Firefox so even if only a small-ish percentage of the people using MySpace choose to use the MySpace search box vs. the one provided at the top of the browser, they stand to make *a lot* of money. Of course, the small social networks aren't so lucky.
Posted by: Scott Moody | Jun 15, 2006 2:03:29 PM
I hope everyone got the same kick out of Jason Chervokas' comment above as I did. Classic!
Posted by: John M. | Jun 15, 2006 3:50:16 PM
Facebook has snagged the high school market -- esp private high schools -- away from MySpace. MySpace high school penetration will continue to drop. Facebook, simply put, has better UI and functionality.
Here's a big question on Facebok's future: as their college students graduate, will they continue to use Facebook for social networking or migrate to LinkedIn and other professional services? Will Facebook roll out better professional/interest-based networking features, or continue to focus on teen stuff like photos?
Posted by: Ben Casnocha | Jun 15, 2006 5:46:38 PM
Watch Bebo as well which is growing like a train with 23m users.
One identified issue with myspace is that the "synchronisation" (to use a legal term from music) between the ads and the page content makes it difficult for main street advertisers to spend lots on random pages on MySpace. Which brand wants to be associated with photographs of say, a dead bunny or links to viruses ? So the CPM's stagnate or decline and even though the page views grow it is hard to drive great revenue growth.
I dont think the teen communities will be as easy to migrate. If a whole school is already on a site and so are the neighbouring schools, is there not a switching cost and some community stickiness ? MySpace achieves near 100% penetration in a number of schools from what I understand.
Would be good to see mainstream initiatives that are credible (besides Yahoo360 ;-)) in this field, your investment in the artsy craftsy business is interesting from that perspective.
Posted by: Fred Destin | Jun 15, 2006 6:36:02 PM
Surfing Moms
"When moms stay at home, they often jump on the Internet. In fact, moms online are a large and influential group.
Nevertheless, according to the new eMarketer report, Moms Online: Parenting with Web 2.0, at the end of 2005 there were an estimated 32 million mothers online in the US, accounting for more than 18% of the total Internet population.
The number of mothers online is expected to increase by 14% between 2005 and 2010, rising to 36.6 million."
http://www.impactlab.com/modules.php?name=News&file=article&sid=8487
Posted by: Dimitar Vesselinov' | Jun 15, 2006 9:09:09 PM
I think MySpace will have some trouble in the future. Here are the two big problems I see:
1. Word on the street is that they are only able to get around $0.10 CPM on their ads. That's not a lot, and it is most likely low due to poor conversion rates for advertisers, not a surplus in ad inventory. Unless they can figure out a way to deliver more relevent advertising, they will have problems monetizing their business. On the plus side, their search auction should net them a decent amount, and perhaps recurring search revs will make lot (like FireFox); however, that depends on the amount of people who actually use the search functionality. FireFox puts it right in front of you every day... Myspace hides it in the corner.
2. In the web marketing underground, people are majorly abusing the system. There are people out there that have automated programs (called ***** trains) to invite friends, and then turn around and sell their profiles for hundreds of dollars. Why? Spamming via bulletins to their "friends" list. There are even companies charging money to spam their collections of "friends". The response rate to this advertising is terrific, and it has become a magnet for affiliates pushing ringtones, icons, and other teen-related products. I bet these shady advertisers pull in much better conversions than the legitimate CPM advertisers!
Posted by: Justin | Jun 15, 2006 11:38:38 PM
In a year or two all the cool kids will start migrating en masse to the lastest, hot site. When they do, everyone else will follow.
Posted by: Thomas Locke Hobbs | Jun 15, 2006 11:57:19 PM
A portable social network tree structure that can be implemented into any service openly. With this in mind, it would promote extensive communication and information sharing, across services.
It would also mean TONS of word-of-mouth marketing as users with a specific service interact with their friends who are at another service (i.e. quickly tagging their Flickr photos and then shipping them out to friends). Let's look at an eBay integration for example... It would essentially create the "social networking marketplace" that's been "going to happen" for quite some time.
Think of the things you could develop using such a service -- web based social media players, REAL social calendars, etc..
I guess it would be a REAL social network...
Just some thoughts...
Posted by: Robert Dewey | Jun 16, 2006 12:48:45 AM
I think teen social networking sites are great for VCs, but not great for acquirers. That's because if they take off, *someone* will buy them and provide an excellent exit to the VC firm.
The acquirer is then left holding the bag on trust and safety, scaling and of course, the biggie -- remaining in vogue/dealing with the fickleness. Much tougher than getting out of the blocks amazingly well.
Posted by: Shri | Jun 16, 2006 1:16:51 PM
I'm paraphrasing from a roundup of stories posted on my blog the other day and a deck I just finished for a presentation ...
If this isn't a segment in hypergrowth, then I don't know what is:
<*> MySpace: 75M users, 30B impressions/month, $1M/day homepage revenue, $500M paid by Fox
<*> Bebo: 88% of 18-34 in IRE, 25M users, 100M impressions/day
<*> Cyworld: 20M daily users ... in South Korea
<*> Gusto: $4M VC, emerging "editorially enhanced" vertical network
<*> Boomba: $30K to build, 2 guys, 2 months
<*> Hi5: 40M users, India, the subcontinent and beyond
<*> Faceparty: 4M users, micro ecommerce-enabled
<*> Xuoa: 1M users, "gamer" interface for social interaction
That's just the tip, and the list is growing. Strong vertical players are emerging, and so are walled garden networks offering more privacy and selectivity. And while the big boys are still strong (MySpace, Bebo, etc.), they are at risk of becoming out of fashion - especially with teens like Jason's daughter - as parents, The New York Times and others "expose" them. Kids are fickle, and once something jumps the shark, they'll move on - especially if there is little to no switching cost.
It has to be tough for the VCs.
Facebook and MySpace won't even say if they're profitable, but the former has turned down at least two buyouts, and MySpace sold for $500M. Go figure.
I can understand how you guys could get confused when 2 guys can build a cool network like Boompa on a shoestring budget in 2 months that could explode on viral alone. How much is Boompa worth compared to a site like Gusto? Gusto just got $3M in VC and the founder tossed in $1M from his pocket. And between you and me, other than the old-school content and editoral ops on Gusto, they look pretty similar to Boompa. Did they need $4M for editorial? If so, ouch! Or, was it because the sector is hot, the concept/vertical is strong, the guy who created it has a track record and has already built and sold a travel company, and VCs are just *dying* to invest?
More, as always, on my blog.
~G~
Posted by: George Nimeh | Jun 18, 2006 9:49:25 AM
Yeah, social networking is a bit of a sticky wicket. It's such an interesting space, in theory, but I don't think the application has been done right yet. The current models are mainly all using advertizing revenue (there are exceptions on the business side of the house - Ryze, Linked In). But it seems to me, without insider knowledge, that click throughs and conversions are going to be on the low end of the graph.
Plus the space is very fad-driven (I first got interested when friendster was all the rage, now it's myspace, but facebook is key in some demographics). On the other hand, it actually is a pain in the butt to sign up on a new site in that you have to recreate your profile, re-invite your social network, and then are you expected to login to multiple sites each day? Likely not. Yet I don't think the current models really make the most of "network effect" lock-in. It feels like the worst of both worlds.
I have no idea what to say about the teen space, but I think there are a few interesting possibilities in social networking. It would be possible to go for a web services backend - use something like FOAF and offer up a pre-built backend to upcoming sites. That way users register once, keep their friends connections, and new and interesting services can be built by third parties that will live and die on the merits of their services and not the cost to switch. Meanwhile since you are building a platform you actually do get the "network effect" lock-in benefits.
Or maybe someone will figure out business networking. Ryze and Linked In ain't it. I think the right model is going to be a cross between a social networking site, a guru.com or elance.com, and ebay. Create a real marketplace for professionals to actually work. Let freelancers create ad-hoc startup companies based on skillsets and ebay style ratings of past performance. There's a lot of great revenue opportunities there - certainly startup lawyers and accounting firms would pay more per click than ringtones providers. Or not.
I think social networking is a viable business space, but I wouldn't go chasing the teenagers. Even though you will always get more visits per day, since grownups do have to work and have grownup-type things to do, I think the value of the visits you can get skewing older is higher. Or else build the backend platform and make the web service transaction fee the placing of an ad on the front-end service's site.
-m
Posted by: Michael Ridley | Jun 22, 2006 2:47:00 AM
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