Mobile space to challenge social networks: Rapid growth in 2008 expected to ease in 2009

It appears there’s room for plenty of winners in the booming segment of mobile social networking sites. But it’s still unclear how lucrative the space will be.
Virtual, on-the-go communities are a driving force as the wireless Web rapidly expands from a curiosity into a mass-market phenomenon, and established Internet giants are dominating their mobile-centric counterparts. Facebook, which claims more than 120 million total members, is the second-most popular site among U.S. mobile surfers using Opera ASA’s Mini browser, according to the most recent figures from the Norwegian software company, just behind Google. MySpace, meanwhile, is No. 3 – giving way to Facebook for the first time – and Friendster finished sixth.
Facebook is doing well among mobile users around the world, too, according to Opera’s data. It’s the most popular mobile site in South Africa, ranks second in Canada, Egypt and the United Kingdom, and is a top-five destination for users in France, Indonesia and Italy.
Those figures echo data provided by ABI Research earlier this year that indicated nearly half of all social network members have visited their favorite sites on their phones. Nearly 70% of all mobile social networkers have visited MySpace, barely outpacing Facebook’s 67%.
Room for more
But smaller players are making headway, also. Friendster is popular in some worldwide markets, and wireless-focused startups like Bebo, Getjar Orkut and Peperonity are also gaining traction in addition to more market-specific communities (such as Nasza Klasa in Poland and vKontakte in Russia and Ukraine). Others, like itsmy.com and Newbay, appear to be gaining ground, and dozens – maybe hundreds – of newcomers are vying for a share of the rapidly-expanding market.
The uptake of mobile social networking destinations will continue as consumers move beyond updating their activities and checking message on the phone, and opt to perform more active functions like posting photos and commenting on the walls of their friends, according to a recent report from ABI Research. While only 17% of those accessing a social network on a mobile phone do so on a daily basis – compared to more than half of those checking their networks on a personal computer – the disparity between the two platforms will shrink as the lines between the mobile and fixed-line Internet continues to blur.
“The fact is that more consumers are really starting to adopt social networking on their phones,” ABI analyst Michael Wolf noted. “The combination of more capable phones with flat-rate mobile broadband and pre-installed social networking applications will help cement social networks as hubs for entertainment and communication, regardless of the screen consumers use to access them.”
Money flow to slow
The current rise in mobile activity comes, however, as analysts are beginning to question just how much money there is to be had in the overall social networking segment. Valuations may never have been higher – witness Facebook’s reported $500 million offer for Twitter, which was spurned despite Twitter’s so-far inability to produce income – but real revenues are increasingly dubious. Analysts say both Facebook and MySpace are poised to see substantially winnowing revenues in the next few years as current advertising deals expire and likely to be replaced by far less attractive pacts. The firm eMarketer recently ratcheted down its forecast for U.S. ad spending on MySpace dramatically for this year, lowering its 2008 projection more than 20% to $585 million.
Much of the bleak outlook is due to the recession, of course, and shrinking advertising budgets. But mobile may be even more vulnerable than its fixed-line counterpart when it comes to the ad dollars that are crucial in social networking communities. Cost-per-impression rates are already dipping dramatically, industry insiders say, as the economic woes coincide with an explosion in mobile ad inventory. And inventory on social networking pages – which aren’t exactly prime real estate for advertisers – will only grow as usage ramps up.
The Internet behemoths are well-positioned to weather the economic storm as they move into mobile, of course, but 2009 may be a pivotal year for smaller, mobile-oriented companies. Venture capitalist firms are tightening their pocketbooks as the recession deepens, and advertisers – who are crucial to most social-network business models – will be unlikely to gamble heavily on the nascent wireless space. So the space is likely to see rapid consolidation this year as wireless communities try to find partners to help them turn traffic into revenues.