No buying sprees ahead for social networks?

No buying sprees ahead for social networks?

Summary: Consolidation will be part and parcel of still maturing social networking, but content partnerships and alliances may be way forward, say industry watchers.

TOPICS: CXO, Apps, Browser, Cloud, Software

MySpace's acquisition of iLike is a "natural progress" of consolidation in a still maturing industry, and unlikely to herald an industry shift of marriages between social networking sites and digital content players, according to an analyst.

Ray Valdes, Gartner's research vice president for Web services, application development and integration, told ZDNet Asia in an e-mail interview that MySpace's iLike acquisition was to solidify MySpace's "already strong presence" in the music sector. At the same time, it could also be interpreted as "an attempt to block Facebook's possible moves" within this space.

"The social networking sector is starting to mature…social sites are broadening their scope, solidifying areas of strength and attempting to plug areas of weakness," noted Valdes. "This one acquisition by itself won't change recent market trends, in which Facebook's user population enjoyed strong growth even as MySpace suffered a steady decline. However, if MySpace were to follow up with additional moves--not just acquisitions but also partnerships--current trends might be reversed."

IDC research suggests that content is what makes or breaks a social networking site. In a survey conducted earlier this year, lack of content was one of the most common reasons users switched their primary social networking site, according to Debbie Swee, market analyst for digital marketplace and new media in IDC's emerging technology advisory services group.

Music, games to boost social networks?
IDC's Swee noted that sites such as Imeem and Friendster would lean toward establishing and building up relationships with music content providers. Online games look set to be another area--Facebook appears "to be benefiting from the online casual games space", she added.

"The bottom line about content partnerships is really playing to each of the social network site's strengths, and enable monetization through these strengths," said Swee.

Jens Butler, principal analyst for IT services at Ovum, added that the content partnerships would be determined by the target audience of the social networking sites. LinkedIn, for instance, is associated with professionals, associations and career development; MySpace users might be drawn to the site for music.

But social networking and digital content players may not necessarily have to take the mergers and acquisitions route, he noted.

"An alternative will be, as in the traditional ICT market, a greater abundance of partnerships and channel alliances to address apparent servicing 'gaps' [for] target audiences," said Butler. "This may be a more viable alternative in the short term, given the still existent cash flow concerns."

IDC's Swee concurred, pointing out that social networking sites are open to partnerships with one another. Imeem, for example, can be embedded in Facebook as a widget.

At the end of the day, "if the content partner is likely to increase the monetization opportunities for the social networking site", there would be a stronger cause for an acquisition, she noted. "For MySpace, it makes sense for the [iLike] buyout to take place because the [site] has taken off somewhat in terms of revenue generation through campaign sponsorship."

But Swee pointed out that the jury is not yet out on whether it makes sense for social networking sites to marry digital content players. "Both [business models] are still experimenting with ways to monetize. Such a partnership may or may not generate revenue in the end."

Topics: CXO, Apps, Browser, Cloud, Software

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