Social Networking Has Taken Off With Users, Investors Swelling

Social Networking Has Taken Off With Users, Investors Swelling

Dec. 27, 2007 (Investor’s Business Daily delivered by Newstex)

After
a career as a Hollywood executive, then a writer and editor for various
publications, Romi Lassally left it all behind this past year to launch
a social networking site.

Now founder and CEO of
TrueMediaLLC.com, Lassally, 44, runs five sites where people go to
secretly post confessions on subjects ranging from parenthood and
military life to ecology. She’s pulled in about $100,000 in ad revenue
since the first site launched in April.

"It’s been exhilarating, terrifying and painful," Lassally said. "My mistakes are expensive, but they are also valuable."

Lassally
is participating in the hottest trend on the Web since Google put
search engines on the map. In just a few years, thousands of social
networking and social forum Web sites have emerged. People visit them
to meet others with similar interests, develop relationships, share
information and stay in touch.

What many deemed a fad when the
first sites appeared in 2000 has evolved into a big business that is
changing the way hundreds of millions of people communicate.

"The
size of it and the impact on consumer behavior has been remarkable,"
said Dennis Miller, general partner at venture capital firm Spark
Capital.

Interest soared when News Corp. (NYSE:NWS) nws
bought MySpace for $580 million in 2005, when the social networking
trend was just an infant. But the child became a beast when Microsoft
(NASDAQ:MSFT) msft put a head-spinning $15 billion
valuation on Facebook by paying $240 million for a 1.6% stake. Other
tech giants in the game include Google goog, Walt Disney (NYSE:DIS) (NYSE:DCQ) dis Co. and Cisco csco, which bought two social networking sites in the past year.

Research
firm eMarketer says 37% of U.S. adults and 70% of teens use social
networking sites. It projects that will rise to 50% of adults by 2011.

Networking
sites also are starting to bring in more revenue. Ad spending on the
sites will top $1.2 billion this year and reach $2.2 billion in 2008,
eMarketer forecasts.

By one count, more than 6,500 social networking sites are active.

Hundreds
of millions in venture dollars have flooded into promising upstarts
over the past two years. With billions of dollars in advertising
transitioning from TV to the Web, these sites will be reaching for a
slice of that ever-growing pie.

"The ad budgets that are moving
from TV to online are shifting so much faster than they were three
years ago," said David Stern, partner at venture capital firm
Clearstone Ventures. And the social networking fever is intense among
the 18-to-34 age group that advertisers crave, he said.

The market also is international and moving onto mobile platforms.

"Social
networking is growing rapidly at the same time there is a massive
migration of people going from the TV to other screens," from the PC
and laptop to handsets, said Stern.

There has yet to be an
eye-catching initial public offering of a social networking site, but
observers say Facebook likely will be the first.

"Facebook is
the ‘it girl’ currently," Miller said. "Any time you are able to
aggregate the massive audience they have while seeing the media frenzy
over Facebook and MySpace, clearly something is afoot."

Facebook claims to have 60 million active users, No. 2 to MySpace.

Networking Globally

According
to Nielsen/NetRatings, more than 145 million people worldwide logged on
to at least one of the 20 most-visited social networking sites in
November. But there could in fact be many more people logging into
various social networking sites.

"A number of indigenous sites
are popping up in various geographic regions," Miller said. Lots of
well-established Web sites are adding social networking features, he
says, including Wal-Mart (NYSE:WMT) wmt and Circuit City (NYSE:CC) cc.

"Social
networking now manifests itself in every pitch we’re getting, from
infrastructure players to mobile," said Miller. "We’re in the midst of
a frothy hyperbole moment."

Ning, a Web site people use to build
their own social networking sites, lists 6,594 clients. Ning’s founder
is Marc Andreessen, co-founder of Web browser pioneer Netscape.

In July, Ning received $44 million in a third round of funding, led by hedge fund Legg Mason. (NYSE:LM)

Another
social networking player, Kyte, received a $15 million second round of
funding this month. Investors include Spain’s largest telecom operator,
Telefonica tef, cell phone leader Nokia (NYSE:NOK) nok, Japan-based telecom operator NTT DoCoMo (NYSE:DCM) dcm and Swiss telecom operator Swisscom.

Kyte
is a Web-based provider of services people use for taking personalized
content such as pictures and video that can be linked to My- Space,
Facebook and other sites. Its main focus is moving that content to
mobile devices.

Going Mobile, Too

That’s why Kyte welcomed telecom investors, said CEO Daniel Graf.

"Getting
distribution in the mobile space has a high barrier to entry. They are
the gatekeepers," he said. "We want them as strategic investors in
order to build an international syndicate."

Getting social
applications onto mobile phones has only recently taken flight. New
phones by Nokia have a Facebook application built in. For any social
networking site to really make it big, analysts say, it will need to be
global and mobile.

But with every potential for reward comes risk.

Facebook
caused a minirevolt with the recent launch of Beacon, an ad model
intended to closely profile its users so advertising could be more
narrowly targeted. The effort was pulled and sent back to the drawing
board as more than 70,000 users signed a petition against it.

And
some observers compare social networking Web sites to trendy
nightclubs, some of which lose their buzz and regular customers over
time. That was true with Friendster.com, the first big site in the
field.

In addition, some users complain that the social
networking experience was less than expected, or even created problems
in their lives. (See related story on this page.)

Still, social networking is here to stay.

"There is a lot of hype right now," Graf said, "but what you’re seeing is not going to stop."

Newstex ID: IBD-0001-21902986

Originally published in the December 27, 2007 version of Investor’s Business Daily.

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