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Monday, December 29, 2008

Social networking sites face data cost crisis

A large number of social networking companies face crisis as digital advertising is on a downswing, revealed a research from consultants Deloitte.

The researchers said that the websites, which had survived the downward trend, might be forced to supplement their revenue with pay-subscriptions, selling members' data or extra financing.

The eMarketer revealed that the predictions came as growth forecasts for digital advertising had halved from 17.2pc to 7.2pc for next year.

According to the Deloitte research, with the revenue declining, the cost of storing electronic data has soared to more than 100m dollars per year for larger sites, as users increasingly want to upload photos and videos, which consume memory.

"The book value of some social networks may be written down and some companies may fail altogether if funding dries up," the Telegraph quoted Paul Lee, Deloitte director of research for technology and telecommunications, as saying.

He added: "Average revenue per user for some of the largest new media sites is measured in just pennies per month, not pounds. This compares with a typical average revenue per user of tens of dollars for a cable subscriber, a regular newspaper reader or a movie fan."

Estimates have revealed that there are more than 1,000 social networking sites on the internet.

Among these are almost 100 big players, which are host to 22pc of UK internet users, and the most popular ones, including MySpace, LinkedIn, Twitter and Facebook, are likely to be more resilient in the face of the advertising slowdown.

However, many of the most popular social networks, such as Facebook and Twitter, do not yet generate large profits.

"Neither (Facebook or Twitter) has yet demonstrated that it can make money on a scale that matches its number of users. Twitter has yet to sketch out plans to monetise its blogging site. Revenue has always been an issue for Facebook," said Madan Sheina, an analyst at Ovum.

While Facebook was valued at 15bn dollars, Microsoft at the same time took a 240m dollars minority stake in October last year.

"With the economy spiralling into a downturn that figure might seem to be exaggerated right now," said Sheina.

Mark Zuckerberg, founder of Facebook, has claimed that for the next two years, they are focussing on growth instead of making money.

However, many signs indicate that the company is feeling the strain of the downturn, as it recently cancelled a plan to allow its employees to sell off shares early owing to the current economic recession. (ANI)


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