A credible analysis of social networking from The Economist

Posted by: in Social Media Insights & Trends on February 1, 2010

connections If you’re looking for credible information about social networks – information that will help you better understand the scope and scale of communication and engagement online from your business perspective in particular – look no further than your closest newsstand or online and The Economist.

This week’s edition of the news magazine includes ‘a world of connections,’ a special report on social networking that dives into online social networks and how they are changing the way people communicate, work and play.

Such changes are mostly for the better, says Martin Giles, the report’s author. You can listen to a podcast interview with Giles in which he adds some distinct commentary about the subject matter and his research, nicely complementary to the report itself.

The report is divided into sections so you can zero in on topics of interest:

  • Introduction: A world of connectionsThis special report will […] argue that social networks are more robust than their critics think, though not every site will prosper, and that social-networking technologies are creating considerable benefits for the businesses that embrace them, whatever their size. Lastly, it will contend that this is just the beginning of an exciting new era of global interconnectedness that will spread ideas and innovations around the world faster than ever before.
  • The dominance of Facebook: Global swap shopsThe most important reason for [the phenomenal growth of social networks] is something called the “network effect”. Originally coined to describe the rapid spread of telephones, this states that the value of a communications network to its users rises exponentially with the number of people connected to it. This implies that the audience of a social network will grow slowly at first, then explode once it passes a certain point. Jeff Weiner, the chief executive of LinkedIn, which now has some 58m members, says it took the company 16 months to reach its first million users, whereas the most recent additional million came on board in only 11 days. Facebook has had a similar experience. It took almost five years to drum up its first 150m users, but just eight months to double that number.
  • The challenge to Facebook: Twitter’s transmitters[Twitter founder Biz] Stone says he sees Twitter as more akin to an outfit like Google than to Facebook. He describes the business as “an information company” whose users are keen to find out answers to what is happening in the world. The billions of tweets that Twitter is gathering up could certainly be the basis for a vast, searchable archive. The challenge facing Mr Stone and his colleagues is to find smart ways of transforming those raw data into profits.
  • Monetizing it all: Profiting from friendshipSocial networks have a better chance of making money than their critics think. […] Advertisers are being drawn to the leading sites by their sheer scale. “Facebook’s audience is bigger than any TV network that has ever existed on the face of the earth,” says Randall Rothenberg, the head of the Interactive Advertising Bureau (IAB). Another thing that has attracted companies is the networks’ ability to target ads with laser-like precision, thanks to the data they hold on their users’ ages, gender, interests and so forth. Although there are still lingering concerns about brands appearing next to racy content, firms seem more willing to run this risk now that the networks’ advertising proposition has become more compelling.
  • Small businesses: A peach of an opportunityA survey of 1,000 heavy users of social networks and other digital media conducted in August 2009 by Razorfish, an advertising agency, found that 44% of those following brands on Twitter said they did so because of the exclusive deals the firms offered to users. […] social networks are arguably having an even greater impact on small businesses than on the big league. By giving entrepreneurs free access to their audience, services such as Twitter and Facebook are putting corporate tiddlers on a par with behemoths such as Starbucks and Dell when it comes to broadcasting messages to a mass market. They have also created what Steve Hasker of Nielsen calls “the world’s biggest, fastest and most dynamic focus groups”, which can be a boon to entrepreneurs without fat research budgets.
  • Firewalling Twitter: Yammering away at the office[Social networks] are part of a growing trend known as the “consumerisation” of IT. Thanks to companies such as Apple, Google and Facebook, people now have access to communications devices and web applications that are often far superior to those offered by their employers. And thanks to cloud computing, which allows all sorts of computing services to be delivered via the internet, they can use these devices and applications pretty much wherever they like, including in offices and factories. This trend is accelerating as more digitally savvy youngsters enter the workforce with their iPhones at the ready. Moreover, as people become increasingly used to sharing and collaborating outside the workplace, they are coming to expect firms to be more open and collaborative places too.
  • Smart hiring: Social contractsIn many ways the world of commerce is a perfect place for a social network to flourish. Doing business, after all, boils down to managing a complex web of relationships with customers, suppliers and others. Professional networks make it easier for people to maintain such relationships and to forge new ones. LinkedIn, for instance, has over 500,000 groups—some better than others—on specialised subjects that people can join to share ideas and make new contacts. Such connections may prove useful later on: research has shown that the more distant members of people’s networks are often the best source of new job leads.
  • Hot topic: Privacy 2.0If there is one thing that could halt the ascent of social networks, it is the vexed question of privacy. This is controversial because it goes right to the heart of the social-networking business model. In order to attract users, sites need to offer ways for members to restrict the information about themselves that gets shared with a wider public. Without effective controls people would be reluctant to sign up. But if a site allows members to keep too much of their information private, there will be less traffic that can be turned into profit through advertising and various other means, so the network’s business will suffer.
  • A future: Towards a socialised state[Nothing] will be remotely as important as the mobile phone. Using a web-enabled phone to post status updates and send messages is still a niche activity in many countries, but it will rapidly become a mainstream one as mobile-broadband services overtake fixed-line ones in a few years’ time. One estimate by eMarketer suggests that just over 600m people will use their phones to tap into social networks by 2013, a more-than-fourfold increase on last year’s 140m. This shift has big implications.

Equally useful is Giles’ list of sources and acknowledgements with links to further research-based and other content about social networks. Equally credible.

If you’re a paying subscriber to The Economist, you can download the complete report as a PDF.

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  1. Using social networks as part of a business plan works only to the extent that readers find value and trust the source. Facebook readers for example are more inclined to respect the opinions of friends but have to be increasing wary of techniques of web marketers. After all, Facebook is and can be used ANONYMOUSLY by internet marketers, which I think ultimately will lead to some much needed policy changes there.

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  1. uberVU - social comments linked to this post on February 1, 2010

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    This post was mentioned on Twitter by jangles: RT @WeissWatch A credible analysis of social networking from The Economist http://bit.ly/906n4D

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