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Ecommerce-Social Networking

Submitted by:

Team: Tycoons Siddhartha Sharma 09BM8048

Varun Wadhwani 09BM8060

Contents Social Networking-Introduction ......................................................................................................... 4

Key Players ........................................................................................................................................ 5

Lifecycle of Social Networks............................................................................................................... 6

Top Social Networking Sites ............................................................................................................... 7

In India .......................................................................................................................................... 7

Top 10 Social Networking Markets .................................................................................................... 9

Most popular Social Networks Globally ........................................................................................ 10

Social Networking Sites for India ..................................................................................................... 11

Revenue Models .............................................................................................................................. 13

Premium Services ........................................................................................................................ 13

Advertisements ........................................................................................................................... 13

Cost per click (CPC) .................................................................................................................. 14

Cost per action (CPA) ............................................................................................................... 14

Pay per lead (PPL) .................................................................................................................... 14

Micropayments ........................................................................................................................... 14

Partnerships ................................................................................................................................ 14

Branding Elements....................................................................................................................... 14

Virtual Currency........................................................................................................................... 15

Virtual Gifts ................................................................................................................................. 15

Surveys ........................................................................................................................................ 15

Recommendations: Possible areas to explore .................................................................................. 17

Government applications............................................................................................................. 17

Business applications ................................................................................................................... 17

Educational applications .............................................................................................................. 17

Medical applications .................................................................................................................... 17

Porter’s Five Forces ......................................................................................................................... 18

Conclusion from Porter’s Five Forces Analysis .............................................................................. 18

SWOT Analysis of the Social Networking Industry ............................................................................ 19

PEST Analysis of the Social Networking Industry .............................................................................. 20

Possible Success Factors of the Industry ...................................................................................... 20

SOCIAL MEDIA-Analyzing the competitiveness ............................................................................. 21

Facebook - SWOT Analysis ............................................................................................................... 22

Recommendations to Facebook....................................................................................................... 23

Long term objectives ....................................................................................................................... 24

Recommendations .......................................................................................................................... 24

References ...................................................................................................................................... 26

Social Networking-Introduction Oxford dictionary defines a social network as a network of social interactions and personal relationships. In terms of virtual world, it defines a social network as a dedicated website or other application which enables users to communicate with each other by posting information, comments, messages, images, etc. Social networking sites offer their users new and varied ways to communicate via the internet, whether through their PC or their mobile phone. The social networking sites have become immensely popular in the last decade. Their users have increased by leaps and bounds. Although these sites have been able to attract a large number of users, they have not been very successful at monetization. Monetization means conversion of number of users into actual revenue for the company. According to a study by Nielson Company, 89 per cent of 15-20 year olds in India access a social networking site everyday and 60 per cent of them spend at least half an hour on social networking each day. Following are some of the statistics associated with Social Networking:

• The world now spends around 22 percent of all time online on social networks and blog sites

• The average visitor spends 66% more time on these sites than a year ago

• 9 out of every 10 U.S. Internet user now visiting a social network in a month

• CNN's international readership found that 43% of online news sharing occurs via social media networks and tools

• The number of users registered for virtual world sites broke the 1 billion mark during 2010

• MyYearbook and Tagged users spent around 3 minutes more than the average MySpace visitor

• Facebook witnesses more than 65 billion page views per month

• More than 14 million photos are uploaded on Facebook and 8 million photos on myspace daily

Another interesting figure was that BlackPlanet, a relatively unknown social networking site, users spend 3.6 minutes more on the site than the average Facebook visitor. This shows that BlackPlanet may have

Key Players

Facebook is a social networking website founded in 2004. It has more than 600 million active users. Facebook’s 2010 revenue is estimated around $2 billion. Most of its revenue comes from advertising. Microsoft is Facebook's exclusive partner for serving banner advertising, and only serves advertisements that exist in Microsoft's advertisement inventory. Facebook’s click through rate, which is a measure of conversion of an advertisement into actual revenue through clicks, is lower than most other websites. Majority of its revenue comes from banner advertisements, referral marketing, partnerships, branding elements, and virtual currency. Alexa rank, which measures traffic on websites, of Facebook is 2 while Google has an Alexa rank of 1.

Twitter is a social networking and microblogging website founded in 2006. It has more than 200 million active users and has revenue of around $150 million (projected 2010). Its users generate an average of 65 million tweets a day and handling over 800,000 search queries per day. Its revenue per user is very low and is therefore exploring new avenues of generating revenue. For this reason, Twitter hired a Adam Bain, a News Corp veteran, as President of Revenue. Twitter is also exploring the possibility of promoted tweets in order to generate revenue and has already signed up a number of wishing to advertise through this medium, including Sony Pictures, Red Bull, Best Buy, and Starbucks to name a few. Its revenue comes from verified accounts, banner ads, referral marketing, and casual game. Alexa rank of Twitter is 9.

Myspace is a social networking site founded in 2003. It has more than 100 million active users and has revenue of around $385 million (2009 estimated). Myspace

relies solely on advertisements for revenue at doesn’t have any pay-for feature and uses behavioural targeting to select ads for each user. Majority of its revenue comes from Google Adsense and other targeted advertisement. Alexa rank of Myspace is 72.

Linkedin is a business-oriented social networking site founded in 2002. Linkedin is mainly used for professional networking. As of 22 March 2011, LinkedIn had more than 100 million registered users and its monthly unique visitors have been estimated around 47.6 million. Its revenue for the first 9 months of 2010 was $161 million. The company was ranked #10 by Silicon Valley Insider on its Top 100 List of most valuable start ups. Its gated access approach is intended to build trust among its users. In 2008, LinkedIn launched DirectAds as a form of sponsored advertising. Majority of Linkedin’s revenue comes from premium accounts, hiring services, advertisements, partnerships, Google AdSense. Alexa rank of Linkedin is 17.

Orkut is a social networking site owned by Google and is one of the most visited websites in India and Brazil although its popularity has dwindled since the introduction of Facebook. 48% of Orkut’s users are from Brazil and 39% are from India while only 2% are from U.S. It faced certain privacy issues for which another set of privacy updates were made. Its revenue comes from advertisements and its Alexa rank is 102.

Lifecycle of Social Networks Every social network has a lifecycle. During the early days of any social network, it is most fragile and most start-ups fail without ever making it past this phase. Some sites make headway through a well aimed effort of getting a break on major blog or a news report. Such buzz may create massive spike in traffic propelling it from the status of a relatively unknown site into the view of thousands more people and pushing it into the mainstream. After the website has had its fair share of buzz it has

a fairly modest Alexa ranking of around 5,000. It now reaches the ‘crunch’ phase of start-up sites – the ‘Valley of Uncertainty‘. From this, a website may either follow a path of gradual growth of remain in the same position indefinitely.

After a certain peak is attained, its popularity starts to dwindle and reaches a relatively stable level called Plateau of Ubiquity. From this phase, the website eventually reaches the stage of Inevitable Decline even after its sustained efforts to revitalise and innovate.

Top Social Networking Sites

In India According to research conducted by comScore Media Metrix, Facebook is the number one social networking site in India basis total number of unique visitors. A more detailed snapshot of the research is given below:

Total Unique Visitors (000)

Site July 2009 July 2010 % change

Facebook 7,472 20,873 179

Orkut 17,069 19,871 16

Bharatstudent.com 4,292 4,432 3

Yahoo! Pulse N/A 3,507 N/A

Twitter 984 3,341 239

LinkedIn N/A 3,267 N/A

Zedge 1,767 3,206 81

Ibibo 1,562 2,960 89

Yahoo! Buzz 542 1,807 233

Shtyle.fm 407 1,550 281

Total 23,255 33,158 43

Top 10 Social Networking Markets According to a research conducted by ecomScore Media Metrix, top 10 markets for social networking sites, basis total unique visitors, are:

Total Unique Visitors (000)

Market July 2009 July 2010 % change

United States 131,088 174,429 33%

China N/A 97,151 N/A

Germany 25,743 37,938 47%

Russian Federation

20,245 35,306 74%

Brazil 23,966 35,221 47%

United Kingdom 30,587 35,153 15%

India 23,255 33,158 43%

France 25,121 32,744 30%

Japan 23,691 31,957 35%

South Korea 15,910 24,962 57%

Total 770,092 945,040 23%

U.S. is the largest market for social networking sites on the basis of total number of unique visitors, while China is second. Comparing 2009 and 2010 figures, we can see that developing economies such as India, Brazil and Russian Federation are witnessing huge growth rates in the number of unique visitors to these sites.

Most popular Social Networks Globally According to research conducted by compete.com, Facebook ranks as no. 1 among the social networks, basis total monthly visits. Myspace, which earlier occupied rank 1 was pushed to rank 2 amid growing popularity of Facebook among users in both developed and developing countries across demographics. Twitter is a distant rank 3, but has made significant progress by beating its previous rank of 22. Orkut has been pushed to rank 21 from its earlier rank of 15. Relatively unknown social networks such as BlackPlanet, imeem, livejournal have attracted more number of users than Orkut. These are ominous signs for Orkut, which must innovate in order to maintain at least this rank.

Flixster is an up and coming social network which is growing in popularity. From the last rankings, it has jumped 12 positions to reach number 4 as its monthly visits are very close to those of Twitter while the number of unique views is more than that of Twitter.

Another interesting statistic thrown by the below figure shows that the average time spent per visit in highest on Facebook. Ibibo.com is a close second followed by Linkedin and Twitter.

Social Networking Sites for India Following are a few most popular social networking sites for India.

Revenue Models Most prominent revenue models used by social networking sites are:

• Premium Services

• Advertisements

• Micropayments

• Partnerships

• Branding elements with applications: example- Living Social application on Facebook

• Virtual Currency

• Virtual Gifts

• Surveys

Premium Services Social Networks catering to niche markets often use this revenue model. Some of the networks that use premium services are: Linkedin, Classmates.com, and MyLife.com. These networks provide users a mix of free as well as paid services. Let us take the example of Linkedin.

Linkedin has three streams of revenue:

1. Upgraded accounts

2. Advertisements

3. Hiring Services

Upgraded accounts are a form of premium services provided by Linkedin to its users. It gives the users three options: Business, Business Pro and Pro Accounts. It gives potential job candidates more access with a stipulated payment per month.

Advertisements This is the most widely used revenue model used by social networking sites. Major forms of the advertisement revenue are:

1. Cost per click (CPC)

2. Cost per action (CPA)

3. Pay per lead (PPL)

4. Cost per thousand viewers (CPM)

Cost per click (CPC): CPC is an online advertising model in which advertisers pay the website their advertisements are hosted on when an ad is clicked.

Cost per action (CPA): CPA is an online advertising model in which advertisers pay the website their advertisements are hosted on when a user after clicking on the ad performs a stipulated action such as form submission, a purchase etc. linked to the advertisement.

Pay per lead (PPL): It is an extension of CPA. An advertiser only pays for leads generated at their destination site. A lead may be a signup through contact information or with some other information which gives the advertiser a lead towards actual purchase. A lead is basically a non cash event.

Cost per thousand viewers (CPM): It is also known as cost per mile. Rather than an absolute cost, CPM estimates the cost per 1000 views of the ad.

Micropayments The rationale behind micropayments is that users are generally willing small amounts of money in order to make their experience of a website better. Micropayments are very lucrative at scale. They are designed so that users feel that they have paid for value. For small amounts of money, users are given lots of add-ons which make their overall experience better.

Partnerships Social networks have very specific target demographics. This makes companies interested in using them to reach out to their target audiences. For example, Apple partnered with Facebook and SimplyHired partnered with Linkedin. This model also involves the creation of product specific pages on these applications for promotion.

Branding Elements This model focuses on the branding of a certain company, product, character etc. with an application. For example, using Living Social on Facebook, users can make a list of their favorite things. Such practices are also used by well established and reputed brands such as Porsche.

Virtual Currency This model is contributing significantly to the overall revenues of social network sites such as Facebook which make use of applications to a great deal. 10 out of 15 applications of facebook are games. These games draw more than 100 million users a month. These virtual games sell games accessories for as less as $1. These virtual goods account for more around 90% of revenue of the gaming companies. A case in point is Zynga, which is a two year old firm, but has already surpassed the annual revenue of $100 million.

Virtual Gifts In today’s virtual world, people have started to substitute real gifts with virtual ones. This is being exploited very well by advertising companies. Users pay for virtual gifts such as cards, champagne, flowers etc. and these gestures are now regarded as a way to convey to people how much you care for them. Revenues from virtual gifts are expected to cross $1 billion in 2010.

Surveys Social media companies pay their members to participate in surveys and profit from granting access to their knowledgeable user base. This is especially true for networks such as Linkedin, but this market is capacity constrained and hence the prospects of revenue growth using this model are limited.

According to eMarketer, U.S. online Social Network spending increased from $350 million in 2006 to $2.515 billion in 2011.

Revenue per user of a few popular websites is compared below:

The above figure further reinforces our observation that social networking website have not been very successful at monetization as we can see that the lowest revenue per unique user is witnessed by social networking sites such as Facebook and Twitter.

Recommendations: Possible areas to explore Due to a lot of clutter in the social networking sphere, for a new entrant, there is a need to venture in slightly unchartered territories of niche social networking.

Government applications Social networking is more recently being used by various government agencies. Social networking tools serve as a quick and easy way for the government to get the opinion of the public and to keep the public updated on their activity. The Centers for Disease Control, Whyville and the National Oceanic and Atmospheric Administration are some such examples of social networking used by government. Besides this, some government agencies are also taking advantage of a few sites including Twitter and Flickr.

Business applications Social networks connect people at low cost. This is being exploited by businesses these days in order to expand their contact bases as they more or less provide them with a platform of customer relationship management. Linkedin is one such example. Hub Culture is another example which is an invitation only social network for entrepreneurs.

Educational applications These social networking sites are based on the assumption that students like to talk about education topics online. Such social networks which also act as a bridge between teachers and students can be used to aid learning. Ning and TeachStreet are two such examples.

Medical applications Social networks are also being adopted by healthcare professionals. All the members of these sites are screened against the state licensing board list of practitioners. This trend is emerging with social networks created to help its members cope with various physical and mental ailments. A few examples of such networks are: PatientsLikeMe for people suffering from life altering ailments, SoberCircle for alcoholics and addicts, DailyStrength and SparkPeople are other examples of such networks.

Porter’s Five Forces

Conclusion from Porter’s Five Forces Analysis

Industry rivalry is very high due to a number of web sites existing. Thus it is not surprising to see successful companies that are highly popular today getting replaced and lost in near future.

Supplier power is very low. The reason is the small size and strength of the Apps providers. This results in very low bargaining power.

Buyer power is very high with people today having large number of websites providing similar set of services. Switching costs are very low and a large section of people already holding multiple accounts on different social networking sites.

Threat of new entrants is on the higher side due to low capital required to enter the industry. Brand loyalty is missing in this industry.

Threat of substitutes is medium. Companies like Yahoo, Google with huge user base can easily compete with social networking sites by providing similar

features. Also people already have different options existing today to store and share data like hard drives etc.

SWOT Analysis of the Social Networking Industry

Following diagram shows the SWOT analysis of the Industry in general:

PEST Analysis of the Social Networking Industry

Possible Success Factors of the Industry

Design – Ease of use, Attractiveness etc.

Target Market – Some sites target niches, some target goegraphies

Activity Focus – Target market can be connecting people over relationships, or over shared interests

User Engagement – Site needs to retain user minutes

Transactions– Innovative features like applications

Privacy –privacy filters and controls

Entry Barriers – Easy sign ups

Trust – Different outlooks to Trust.

Localization– Local content, languages etc.

SOCIAL MEDIA-Analyzing the competitiveness

T-Factor Question to be asked Function of

Transactions Do the transactions on your site make a difference to the users’ life? Are they repeated?

Repeat transactions

Targeting Can the site distinguish between the preferences, likes/dislikes of two users?

Targeted Advertisements and Content

Time Do your users spend time on your site? Are you an industry leader in user engagements?

User Engagement & Content

Facebook - SWOT Analysis

Facebook is a website and a social networking service launched in the year 2004, operated and privately owned by Facebook, Inc. As on January 2011, Facebook is standing with more than 600 million active users. More and more users are getting a part of it each day. Users can create their personal profile; add other users as friends, exchange messages, and share videos including automatic notifications when they update their profile. Additionally, users may also join common interest user groups, organized by workplace, school or college, or other characteristics.

Let us understand the strengths and weaknesses of the market leader of social networking industry in detail.

STRENGTH

1. Huge active user base.

2. Popular Platform for application development

3. Present in all geographies

4. Translated in over 40 languages

5. Email and Chat are integrated

WEAKNESSES

1. Weak at monetizing the user base and delivering a high number of ad’s per user

2. Inability to manage application feeds leading to clutter on the website & reactions from users

OPPORTUNITY

1. Advertising is moving towards Targeted ads and not blanked advertising. FB is perfectly positioned for this since it has a huge amt. of personal user information and preferences.

2. Improve Email and Chat

THREATS

1. Social networking audience is fickle and frequently shift providers

2. People may grow tired of the highly structured FB and move to MySpace

3. People have privacy concern with Facebook

4. Risk of losing young, hip image

Recommendations to Facebook Based on the above SWOT analysis, we have identified the following suggestions:

S – O

1. Increase targeted advertisements and develop “local ads” – A way of showing products relevant to the user’s location.

2. Improve quality of the integrated email and chat apps.

O – W

1. Work on ways to reduce the increasing amount of clutter on FB homepages

2. Create more monetization opportunities

S – T

1. Try to deliver localized content and ads (i.e. move beyond the language translations)

2. Improve development platform on aspects like security, privacy.

T – W

1. Always keep enhancing and innovating features to keep users coming back to the website.

2. Increase opportunities to customize pages

Long term objectives Following diagram shows how a social networking service evolves. Initially it just tries to create an enjoyable experience and tries to bring in more and more users on its platform. As it starts providing more and more services that one can use daily, it starts to become a part of our life. Thus the success of any social networking service depends on how it does this effectively.

Recommendations

The recommendations are identified in three different areas that is Monetization, Applications and communication effectiveness. They are shown as below:

Monetization

o Focus on monetization to improve valuations

o Use the ‘Status Updates’ to deliver targeted advertisements

o Deliver “Local advertising” based on user locations.

Applications (rules & controls)

o The display of updates from applications annoys users.

o Privacy concerns from Apps to be addressed

o Clutter forces users to miss out on news about the people they are interested in

Communications

o Improvement in storage, archival and search in the email and chat functions

o Solve the problem of how businesses can contact customer looking for services in a manner that does not infringe privacy

References

oxforddictionaries.com

www.facebook.com

www.myspace.com

http://stakeholders.ofcom.org.uk/binaries/research/media-literacy/report1.pdf

http://www.wisdump.com/web/the-ebb-and-flow-of-social-networking/

www.comscore.com

www.wikipedia.org