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Evolving Social Networking Trends

Telecom, Media and Entertainment

February 2010
Consumer interest and time spent on social networks have rapidly increased
in recent years
Evolution of Social Networking Users and Usage

Total Unique Visitors, 000’s, Select Social Share of Time Spent on Internet Activities, %,
Networking Sites, Global, Jun 2006 - Nov 2008 July 2008 - July 2009, US
250,000
-9% 129%
-13.5%

43.40%

39.60%
200,000 -22.7%

-15%

28.20%

24.40%

20.60%
150,000

14.10%

10.90%

5.30%

4.50%

9%
100,000

Communication

Commerce
Content

Search

Social Networking
50,000

0
Jun-06 Jun-07 Jun-08 Nov-08
Jul-08 Jul-09

Source: Capgemini TME Strategy Lab Analysis; Comscore Global through Morgan Stanley, “Economy and Internet Trends”, Oct 2009; TechCrunch, “Top Social Media Sites of 2008 (Facebook Still Rising)”,
Dec 2008; comScore Press Releases; OPA Internet Activity Index
Note: 1) Facebook had over 340 Mn unique visitors globally in June 2009

Copyright © 2010 Capgemini. All rights reserved. 2


Despite advertising being the mainstay of social networking, newer revenue
models are beginning to appear
Paid approaches beyond advertising present potential incremental revenue streams for telcos
Advertising Spend and Paid1 Revenue, Social
Networking Sites ($ Mn), US, 2008-2013  Virtual goods appear to be the most promising
model of social network monetization:
47%
45% – The market for virtual goods in the US is estimated to
42% double to over $2 bn in 2010
38%
 The virtual goods space is already witnessing
33%
29% 1,405 significant activity:
1,211 – EA purchased Playfish, a social gaming developer for
1,005
$275 Mn in Nov 2009
811
627
502 – Zynga, makers of popular games such as Farmville,
raised over $180 Mn on an estimated revenue base of
over $300 Mn
1,500 1,600
1,400
1,200 1,300 1,300
 Internet advertising is showing signs of decline,
forcing developers to push for paid approaches:
– Social gaming firm Crowdstar abandoned in-game ads
2008 2009 2010 2011 2012 2013 in favor of virtual goods
Advertising Spend Paid SN Sites Revenue

Paid Revenues as % of Total

Source: eMarketer, “Worldwide Social Network ad spending”, Mar 2009; Piper Jaffray, “Pay to Play: Paid Internet Services”,July 2009; Reuters, “Virtual goods give Web firms new revenue in ad slump”,
Dec 2009
Note: a) Paid services include membership fees, premium features and virtual goods

Copyright © 2010 Capgemini. All rights reserved. 3


Early successes of advertising and new monetization models indicate the
inherent potential of the social networking space
Overview of Monetization Models in the Social Network Space that Telcos Can Potentially Deploy
Advertising Subscriptions Micropayments

Monetization Revenues through display and Revenues through recurring Revenues through transactions for
Models search advertising subscription payments virtual goods

Facebook Revenue Estimates Revenues by Segment, Euro (Mn), Zynga Revenue Estimates ($ Mn),
($ Mn), 2007-2010E, Global Xing, Q2 08 – Q2 09, Germany 2008-2010E, Global

68% 167%
CAGR CAGR
Growth
Indicators

Source: Capgemini TME Strategy Lab analysis; Company websites and annual reports; Piper Jaffray, “Pay to Play: Paid Internet Services”, July 2009; Inside Social Games, “The Latest Stats on Zynga: New
Traffic, Revenue and a $1 Billion Valuation?”, Nov 2009; Virtual Goods News, “$50 Mil Revenue from Virtual Goods Sales for Zynga in 2008”, Jan 2009; 1) Zynga is one of the leading social gaming
companies, operating popular games including Farmville, Mafia Wars, on Facebook 2)Xing is one of the popular business-user oriented social network operating primarily in Germany

Copyright © 2010 Capgemini. All rights reserved. 4


Telcos and social networks are witnessing an increase in mobile social
networking traffic, indicating its rising attractiveness
Growth in Social Networking Traffic on Orange’s Mobile Network in the UK and Popular Japanese
Social Network Mixi

Monthly Page Impressions (in Mn) and Unique Users (in ‘000s), Monthly Page Views (in Mn), Desktop and Mobile, Mixi Japan,
Social Networking Sites, Orange UK, Dec 2008 & May 2009 Q1 07-Q3 09

48%

129%

11,400 11,600
9,500
6,200 7,800
3,400

6,800 6,000 5,200 4,900 4,400


4,200

Q1 07 Q3 07 Q1 08 Q3 08 Q1 09 Q3 09

Desktop Mobile
Dec 2008 May 2009

Source: Company websites; Orange, “Digital Media Index”, 2008 & 2009; Morgan Stanley, “The Mobile Internet Report”, Dec 2009
1) Mixi is one of the most popular social networks in Japan, available on both the fixed and mobile platform

Copyright © 2010 Capgemini. All rights reserved. 5


Consumers are rapidly scaling up their usage of social networking on the
mobile
Consumers are increasing their consumption of Networks such as Facebook are now seeing
social networking on the mobile significant traffic from their mobile users

Mobile Internet Audience Growth, % of Market1, UK, Usage per day (Mins) and Visits per day, Facebook-on PC
May 08-09 and Mobile, UK, 2009

27% 27.5

24.0
150%

Average Usage Per Day


PC Mobile

Increased usage of social networking on the mobile platform is likely to drive mobile data traffic

Note: 1) % of total market refers to the number of mobile users using mobile Internet services during the three-month periods ending May -8 and May-09
Source: Comscore, “Social Networks on the Move”, Sept 2009

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The dynamic nature of the online social networking space has meant that
market leadership remains volatile
Top 5 Social Networking Websites Based on Unique Visitors, 2005-2010E

2005 2007 2009 2010?

1 MSN Groups MySpace Facebook Facebook

2 Classmates Facebook MySpace Twitter

3 AOL Hometown Classmates Twitter MySpace

4 MySpace Windows Live Classmates LinkedIn

5 Windows Live AOL Hometown Linkedin Classmates

Even if telcos are able to garner a user base in the short-term, ensuring sustained leadership is likely to be a
challenge.
Increase in Ranking Decrease in Ranking
Source: Capgemini TME Strategy Lab Analysis; Nielsen, Top 10 Social Networking Sites in the US”, 2005-2009

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Moreover, there appears to be early indicators of the younger demographic
moving away from social networking sites globally
Change in Unique Audience Composition of Member
Community* Websites, %, Dec 2007 – Dec 2008  Youngsters are spending lesser time on social
networking sites:
7% – Average number of minutes spent on Facebook among
18-24 year olds declined every month for the three-
month period ended Sept 2009
4%
– Drop-off rate accelerated from 3% in July to 13% in
2% August to over 16% in September 2009

-9% -1%  There is a perceived decline in the quality of


relationships on social networks:
– A consumer survey done in August 2009, indicated that
over 51% of 18-24 year old respondents agreed that
sites such as Facebook are diluting the quality of
relationships

 There appears to be early indicators of movement


towards niche networks:
– Around 40% of the group surveyed above indicated that
they now visit social networks based on particular
2-17 Yrs 18-34 Yrs 35-49 Yrs 50-64 Yrs 65+ Yrs interests such as TV, music or movies

Source: Nielsen, Global Faces and Networked Places, March 2009; Comscore press releases; Ad Week, “Is Facebook Getting Uncool for 18-24s?, Nov 2009;
Note: Member Community implies Social Networking and Blogging websites; Global refers to Australia, Brazil, China, Germany, Spain, France, Italy, UK and USA only

Copyright © 2010 Capgemini. All rights reserved. 8


However, these broader global trends also mask regional peculiarities making
target audience identification a significant challenge
In UK, social networking subscribers in the 15-24 …And this audience appears to be consolidating
yrs age segment continues to grow… around larger networks
Total Unique Social Networking Subscribers, Total Unique Subscribers, Select Social Networks,
Age 15-24 (Mn), UK, June 2008- June 2009 Age 15-24, Mn, UK, June 2008- June 2009

51%
5.8
6.8 -27%
CAGR 14%

3.8 3.9
-25%
2.8
2.4
6 1.8

Jun-08 Jun-09 Facebook Bebo Myspace


Jun-08 Jun-09
Source: Nielsen, Global Faces and Networked Places, March 2009; Comscore press releases
Note: Member Community implies Social Networking and Blogging websites

Copyright © 2010 Capgemini. All rights reserved. 9


Such challenges are further exacerbated by the differing demographic
trends exhibited by different networks such as Facebook and Twitter
Facebook is seeing a strong rise in activity from an …While Twitter appears to be exhibiting the
older demographic… opposing trend
Facebook Users by Age (%), US, Oct 2007 – July 2009 Unique Visitors by Age (%), US, July 2008 – July 2009

3.4% 7.0% 8.5% 19% 24%


28% 27% 26% 26% 27% 27% 26% 26% 25% 25% 25%
14.3% 16.6%
21.2%
29.3% 32%
26.8%
31%
34% 31% 29% 28%
41% 38% 35% 38% 40% 39% 38%

16%
62.2% 26.1% 28% 20% 18% 17%
19% 18% 17%
54.0%
14% 18% 15% 16% 15%
14% 15%
13% 15%
40.9% 12% 17% 9% 8% 11% 8% 9% 10% 10%
9% 10%
6% 6% 6% 5% 6% 7% 6% 6% 7% 6% 7%
26.0% 2% 2% 2% 2% 3% 3% 3% 3% 3% 3% 4% 5% 5%

May-09
Nov-08

Mar-09
Aug-08

Jan-09

Apr-09

Jun-09
Jul-08

Jul-09
Sep-08

Feb-09
Oct-08

Dec-08
19.2% 16.6% 13.5% 10.2%

Oct 07 Jun 08 Jan 09 Jul 09


2-11 Years 12-17 Years 18-24 Years
0-17 18-24 25-34 35-54 55+ 25-34 Years 35-54 Years 55 Years+

Source: Nielsen, Global Faces and Networked Places, March 2009; Comscore press releases
Note: Member Community implies Social Networking and Blogging websites

Copyright © 2010 Capgemini. All rights reserved. 10


Audience migration from core social networking sites remains a
significant risk in view of the early indicators from social gaming developers
Zynga is looking to drive users of its games away In doing so, Zynga gets more freedom in
from Facebook and onto its dedicated portal determining payment channels and ad models
No of Unique Visitors to FarmVille.com, Millions,
Oct-Dec 2009
 Dedicated sites allow for better control over
content and ads:
– Zynga faced an issue with Facebook over specific kind
of ads in its “FishVille” game and Facebook
subsequently took it down
– Having an own domain helps in exercising better
control on the kind of ads that will show up on the site

 There exists strong potential to launch cross-


game virtual currencies:
– Zynga can potentially launch a common cross-game
currency which it can use across all of its games, rather
than be tied down to the specific payment engine
offered by a social network

Such behavior is likely to result in social networks ending up as breeding grounds for third-party services,
which will end up deserting them.
Source: Capgemini TME Strategy Lab analysis; Compete traffic data’ Note: Zynga operates social games such as Farmville and Mafia Wars on Facebook; Users install those applications on their profiles and
play these games together with their network. These games have primarily been limited to the Facebook site till now, however, Zynga is now attempting to migrate this audience to its own domain. However,
overall impact remains limited on Facebook since the pace of organic growth of Facebook remains strong

Copyright © 2010 Capgemini. All rights reserved. 11


Moreover, while adopting an open approach helps in driving uptake
and building an ecosystem, there exists a risk of marginalization
Services that over-expose themselves face a significant risk of being outdone by third-party applications

Market Share Evolution of Twitter Applications,


Jun 2009-Nov 2009, Global

 Twitter faces a threat of marginalization of core


portal:
– With multiple applications and third-party sites offering
the ability to update Twitter status, the core portal faces
a significant risk of becoming sidelined
– This is likely to reduce the importance of Twitter.com in
the overall ecosystem; already over 50% of all tweets
are estimated to come from third-party applications

 Such an outcome also limits the monetization


models that Twitter can adopt:
– Limited traffic to Twitter.com represents a downside risk
in terms of monetizing models; for instance, prospects
of display advertising on the site are low

Source: Capgemini TME Strategy Lab analysis; Sysomos, “Inside Twitter Clients”, Nov 2009; Sysomos, “Inside Twitter: An In-Depth Look Inside the Twitter World”, Jun 2009

Copyright © 2010 Capgemini. All rights reserved. 12


We believe the online social networking1 space is not attractive, given its
relative maturity and the reach of the current market leader
Market leader Facebook has firmly established itself across the world
Social Network Usage on PC and Mobile, User Reach of Facebook, % of Total Online Audience,
Survey2, Aug 2009, US Select Countries, Dec 2008

PC
47%
44%

38%
33%
29% 30%
27% 28%

Mobile

Switzerland

France

UK
Australia
Spain

Global

USA

Italy
Source: Nielsen, “Global Faced and Networked Places”, Mar 2009; Admob, “Social Networking: Mobile Consumers Weigh in”, Sept 2009; 3) Reach refers to Facebook users as a percentage amongst online users in
that geography; Global refers to Australia, Brazil, China, Germany, Spain, France, Italy, UK and USA only
Note: 1) Online social networking refers to social networking services offered primarily on the fixed-PC platform and those targeted at PC and laptop users; 2) The survey was carried out on Smartphone users

Copyright © 2010 Capgemini. All rights reserved. 13


The mobile platform offers the right market for capitalizing on the social
networking opportunity, given its nascent state
Social Networking Platforms Differentiated by their Opportunity for Telcos

Intensity of Competition: Low


Competition: High
Market Maturity:
Market Maturity: Nascent
Mature
User Base of Market
User Base of Market Leader: No clear
Leader: 400 Mn Online Social Mobile-Only Social leader; Foursquare has
Networking Networking around 300,000 users
Estimated Revenues
(US), 2009: $1,927 Mn Estimated Revenues
(US), 2009: $250 Mn
Estimated Revenue
Growth Rate (US), Estimated Revenue
2008-2013 CAGR: Growth Rate (US),
12% 2008-2013 CAGR:
39%

Social networks that see significant traffic on


both the fixed and mobile platforms

Source: Company websites and press releases; Informa,” Mobile Social Networking Forecasts”, 2009; Piper Jaffray, “Pay to Play: Paid Internet Services”, July 2009;

Copyright © 2010 Capgemini. All rights reserved. 14


The risk of volatile user behavior too is low since early trends from the mobile
web indicate an evolution path that is different from the PC-based web
The PC-based Web and Mobile Web Indicate opposing trends
Indicators from the PC- Indicators from Mobile
Consumer Behavior
based Web Web
 Significant public backlash when Facebook  Consumers have shown inclination to sign
started its Beacon targeted advertising up and opt-in for targeted mobile
Approach to Privacy advertising campaigns; Eg: Blyk
 Negative publicity for Google when it
published lists of frequently emailed  Rapid rise of mobile social networks where
contacts online in Google Buzz user location is broadcasted in real-time

 Social networks such as Facebook are  On the mobile platform, Facebook is


seeing very strong growth in engagement witnessing 2x across all engagement
Engagement with Sites on the PC-platform, with both usage and parameters when compared to its desktop
repeat visits showing significant rise version

 Research from Morgan Stanley indicates


 The same research indicates the figure to
Inclination to Pay that on the desktop web only 30% of users
be as high as 76% for the mobile Internet
are paying for instant access

Nascent state of mobile web provides an opportunity for telcos to try and define the monetization models
and not be burdened by the history of the desktop web
Source: Capgemini TME Strategy Lab analysis; Facebook presentation at Mobile World Congress, 2010; Morgan Stanley, “Mobile Internet Report”, Dec 2009

Copyright © 2010 Capgemini. All rights reserved. 15


Moreover, recent evidence suggests that presence on the fixed platform is no
longer a pre-requisite for success on the mobile platform
Service Name Launch Date & Target Platform Availability Success Indicators
Market
Fixed Mobile
 The network had close to 100,000 users
within three months of launch
 
Beta Launch
Mobile geo-location Mar 2009; Global
 The company raised over $8.4 Mn within ten
based social network weeks of service launch

Beta Launch  Foursquare was launched in March 2009, and


currently has close to 300,000 subscribers
Mobile geo-location
Oct 2009, Global
   The service is currently seeing a check-in
based social network every second

 The service gained over 450,000 users in

Mobile geo-location
Beta Launch
Dec 2009, US   under one month of launch with average daily
usage time of over 30 mins and 31 Mn check-
based gaming service ins from over 2.1 Mn unique locations

 Over 175,000 paid customers with an average


ARPU of $12
 
Launch
Mobile dating and 2006, UK  Over 30% of users sign-in to the service over
flirting website seven times a day
Source: Venture Beat, “Booyah’s MyTown steams ahead in location-based gaming with 450,000 users”, Jan 2010; GigaOM, “GoWalla About to Pass the 100,000 User Mark”, Jan 2010; Tech Crunch,
“Foursquare Who? Gowalla What? MyTown Has 500,000 Users And 31 Million Check-Ins”, Jan 2010; Daily Finance, “Flirtomatic: Selling digital ice cubes and other online bling for real dollars”, Oct 2009;
Note: Target market and platform refer to the primary focus of the service provider,

Copyright © 2010 Capgemini. All rights reserved. 16