Social networking - threat or opportunity?

Everything we want to do in real life, we can do online. Meet, greet and date others, spread content in the hope of sudden fame, run businesses and lots more. Welcome to the world of social networking. But what’s the reality for service providers?

Humans are social creatures. We like to belong to a group. People are finding social networks that they identify with, that appeal to their values and passions. They are becoming prosumers – consumers who also produce content.

This deep need to connect has produced the phenomenon of social networking over the Internet. Today, the top ten social networking sites have more than 650 million users between them. In a recent report (A Glimpse of the Next Episode, December 2007) Nokia predicts that up to a quarter of the entertainment consumed by people in five years time will have been created, edited and shared within their peer circle rather than coming from traditional media groups.

Added value through simple technology

“The basic technology is simple, the change is in the way that people like to communicate,” says Henning Kosmack, Business Development and Innovations at NSN. “It is convenient and merges real-time and non-real-time, unlike chat where you have to be online constantly. And people can pretend to be a little better than they really are, they can tweak reality.”

The allure of social networking is spreading and it’s not just attracting teenagers. Increasingly, older consumers are catching on, with 50% of MySpace users being above 35. This is the age group showing the fastest increase in adoption rate. Social networking as an industry is growing up, and so are its users.

It’s not all straightforward for social networking companies. They have struggled with trust and security, earning negative media coverage. Some of today’s most urgent issues include online safety, identity theft and security.

Communicating through the portal

“Social networking is changing the way people communicate. People are starting to use social networking channels as their primary means of communication. Instead of sending an email or SMS, users are increasingly leaving messages on a social networking site. It’s easy and it’s free,” comments Kosmack. “Although social networking has not yet penetrated the mobile space significantly, once it does and users are already logged onto their favorite site, will they be more likely to use that to send a message than to create and send an SMS?”

Indeed the mobile arena seems to be wide open for the social networking industry to conquer. Kosmack, who is responsible for looking at start-ups and the venture community for NSN, points to US company Sonopia as an innovative example. Founded in 2007, the company has raised more than USD 20 million to combine social networking with mobile services.

Real opportunities exist for service providers

One of the most obvious impacts of the rise of social networking is the traffic boom it creates. It’s a strong factor in the predicted 100-fold rise in traffic over networks in the next few years.

For fixed operators, social networking will continue to drive up demand for always-on broadband connections. With most people on broadband having ‘all-you-can-eat’ tariffs, there will also be a shift in traffic patterns with a big increase in upstream data.

For mobile service providers, social networking represents an opportunity to generate more revenue from traffic. Some service providers see it as a great way to encourage subscribers to sign up to lucrative mobile data packages, offering special data tariffs to enable users to access social networking sites when out and about.

Service providers also have the potential to bring value by partnering with social networking sites. “Adding location is a good example,” says Kosmack. “Perhaps people would like to know where their buddies are, with this information being provided by the mobile service provider. Also, as social networking companies look to complement advertising revenue by offering premium content, they may benefit from a charging mechanism other than the credit card. The amounts involved will probably be small, and could be added to the phone bill.”

Other possibilities exist too, but only if service providers are fast to adapt, otherwise they will be bypassed. Their wealth of network intelligence could be used to enhance new services with identity management, behavior tracking and user preferences to help consumers find relevant communities.

But long-term threats are rising

On the other hand, serious threats lurk on the horizon. Social networking companies may eventually be able to take significant chunks of business away from service providers.

Kosmack explains: “The big social networks are already becoming huge portals with applications from third parties. They are trying to become the underlying platform for communications. What is to stop them from ultimately becoming communications supercarriers that people identify with for all their communications? What then would be the role of today’s service providers?”

It’s a scary scenario, but Kosmack points to one recent deal as evidence of what is happening. In December 2007, Bebo launched its Open Application Platform to enable third-party developers to help the social networking site create a better experience for its users. Already more than 40 developers have partnered with the site to reach its 40 million users.

“If this kind of development gains traction and moves into the mobile world – which it will – service providers face some serious threats,” comments Kosmack. “Whether or not you think that spending time on Facebook is silly, it is a big thing that will change how people communicate. There will be huge consequences if people in our industry ignore this trend.”

Social networking sites are only the beginning, but they hint at what is possible. Service providers clearly need to look for new ways to use social networks and communities to drive the adoption of new services, and benefit from viral marketing and the richness of their end-user data. The long-term winners will be those who can successfully move their operations all the way up this value chain.