Social networks--future portal or fad?

Investors and execs can't decide if MySpace and Facebook are next-generation portals or flash-in-the-pan communities.

Stefanie Olsen
Stefanie Olsen Staff writer, CNET News
Stefanie Olsen covers technology and science.
4 min read
LAGUNA BEACH, Calif.--Social networks like MySpace and Facebook are the zeitgeist for online executives and investors, just as they are for millions of young people.

But attendees at the Piper Jaffray Global Internet Summit here still can't decide if these companies are next-generation portals, or merely flash-in-the-pan communities that will eventually fade from popularity like one-time high-fliers Geocities or AOL.

Telling evidence stacks up on both sides.

On the one hand, MySpace's scope of services and member traffic rivals that of many major portals. Since launching three years ago, MySpace, now owned by News Corp., has added e-mail, instant messaging and blog services, as well as jobs, video, book and music stores. According to founding MySpace member Colin Digiaro, who spoke here Tuesday, the company is talking to "all the usual suspects and unusual suspects" about licensing Web search technology to accommodate a growing demand among its 50 million members for that functionality. (It currently uses Yahoo search for internal site search and displays Overture ads for Web search results.)

"We're trying to find the best-of-breed search functionality," Digiaro said.

I used to be into MySpace and now I'm getting over it.
--Monica, 18, who will attend UCLA this fall

What's more, MySpace's monthly traffic figures have trumped those of MSN and AOL, according to ComScore Media, and they comprise about 75 percent of Yahoo's, the No. 1 site on the Web. Anecdotally, the time teens and college kids spend on MySpace is stealing time they would otherwise spend watching TV, according to an informal focus group of young and older teens interviewed at the conference.

MySpace's "goal was to become a next-generation portal," Digiaro said. "I think we're there."

Trouble ahead for MySpace?
On the other hand, these social communities could turn out to be fads among capricious Web surfers, skeptics say. After all, rudimentary social networks have always been around in communities like AOL and Geocities. And if comments made during the same focus group of young and older teens are any indication, MySpace could be headed into trouble with a thriving portion of its members. The aging kids talked about tiring of MySpace and moving on to other social networks or activities, much the way some kids have left AOL's instant-messaging service.

"I'm starting to get over it," said Juliana, a 21-year-old living in Orange County, who said she's now into Faceclick, another, newer social network for college kids.

Monica, an 18-year-old who's enrolled at UCLA in the fall, said she's further along with MySpace, opting to spend her more than eight hours a day online at sites like photo-sharing site Photobucket.com and Acidplanet.com, a music-hosting site. "I used to be into MySpace and now I'm getting over it."

Still, younger teens interviewed said that they were big users of MySpace, spending hours honing their member profiles. And 80 percent of MySpace's demographic skews over 18 years old.

Yet, Safa Rashtchy, a senior research analyst at Piper Jaffray, compared the social networks to the walled garden environments of AOL and eBay, two companies that have lost favor among investors. He asked whether people ultimately like to stay within these online walled gardens.

Also, it's unclear whether advertisers are spending enough with social networks to make their free services profitable. During a panel discussion of advertisers, ad executives said that many marketers don't want to associate their brands with the sometimes risque or inappropriate material that can surface on the social networks from their members.

When pressed by industry observers, executives at MySpace and Facebook declined to say whether they are profitable. As part of Newscorp., MySpace is not required to report its finances. Owen Van Natta, COO of college-focused social directory Facebook, which is privately held, joked that it's a "definite maybe."

Some panelists still took this as a sign that these companies, despite hosting user-generated content that generally doesn't cost as much to support as staff editorial, were not profitable. The cost of advertising rates at these sites aren't typically at a premium, either, making it unclear how much MySpace and Facebook are benefiting from growing online ad sales.

In defense, Digiaro, MySpace senior vice president of sales and business development, said that the company works with all major advertisers in various vertical markets, including the Cokes and Ford Motors of the world. MySpace also commands ad premiums for such areas within its music and video stores, he said.

He said to retain teen surfers, which comprise about 20 percent of its total audience, MySpace has introduced new features faster than rivals and has developed a lasting social connection with members that increases as their history of blog posts and e-mail amasses. The company also plans to expand internationally, starting with the U.K. and Ireland, and get on mobile handsets across the United States.

He also suggested that MySpace could eventually introduce a transportable persona that members could take with them to other services.

"Social networks will continue to evolve," he said.