Analyst: Social networking faces uncertain future

By Natasha Lomas

http://www.news.com/Analyst-Social-networking-faces-uncertain-future/2100-1025_3-6214355.html

Story last modified Fri Oct 19 10:21:48 PDT 2007

Social-networking sites will enlist 230 million active members by the end of the year and will keep attracting new users until at least 2009, according to an analyst report. But investors are still wary--and for good reason, as long-term growth is by no means certain.

A report by U.K.-based Datamonitor, titled "The future of social networking: Understanding market strategic and technological developments," predicts that growth in the number of people signing up to be a part of the cultural phenomenon, which has put the likes of Facebook on the map, will peak by 2009 and plateau by 2012.

It also suggests revenues from social-networking services will hit $965 million this year, swelling to $2.4 billion by 2012.

Growth in the membership of social-networking sites varies dramatically by region, according to the analyst, which predicts Asia Pacific will account for 35 percent of global social networking users by the end of this year, followed by EMEA (28 percent), North America (25 percent), and the Caribbean and Latin America (12 percent).

However, while Datamonitor likens the current hype and excitement around social networking to the heady days of the dot-com boom, it said there is anxiety as well, and warns that investors are pulled in two directions. They do not want to miss out on the "next Google or Yahoo" but are cautious of being overconfident about a Web phenomenon that is not proven over the long term.

It is for this reason that most social-networking sites would be wise to postpone an IPO, said the analyst.

Speaking at a Web 2.0 conference in the US recently, Mark Zuckerberg, this year's top Agenda Setter award winner and founder and chief executive of Facebook--very much the social network of the moment--said his company is "years" away from any such flotation.

Ri Pierce-Grove Technology, analyst at Datamonitor and author of the report, said in a statement: "The extraordinary proliferation of online social networks is fueled by real innovation and is substantially changing the way we communicate. However, the hothouse atmosphere of easy capital, media attention and user curiosity which stimulates creativity will not be sustained indefinitely."

The analyst added that players must develop a "two-pronged strategy in order to survive the extremes of heat and eventual chill which this market will undergo."

Datamonitor said the current growth in social networking offers opportunities for businesses to get involved in supporting the infrastructure needed to run such sites, and it advises technology providers to look for ways to support social-networking services in the areas of scalability and availability.

The analyst also takes the view that consolidation in the marketplace is likely as it becomes more crowded, but said this does not necessarily mean individual sites will be swallowed up. For instance, it predicts special interest social-network sites will continue to play a role.