Social Networking Globally 6.5 B dollar industry already

The "Community Story" has become a passion for Alan and me. We've been weaving elements of the story on this blog but since our book we haven't taken another wholistic look at the state of the industry on a whole. Last week Alan and I presented at the first university course on Social Networking for Mobile, at Oxford University, and we had to do a lot of re-visiting the individual trends and threads and sub-plots in the story. So I think its about time to review our industry a bit.

I've been trying to put the pieces together from various sources such as Informa and eMarketer and put the TomiAhonen Consulting analytics to the numbers, and have arrived at the end-of-year 2006 annual numbers for the global social networking industry. It totals 6.47 B dollars, almost 6.5 Billion. This includes all subscription and content revenues of the various social networking sites from Linked In to Skype and Second Life to Flirtomatic. It includes advertising on social networking such as ads on YouTube and MySpace. It includes the revenues of MMOGs Massively Multiplayer Online Games from World of Warcraft to Counterstrike. And of course the mobile social networking revenues ranging from SeeMeTV to Habbo Hotel and Cyworld.

As a break-down, I find the largest single revenue source mobile at 3.45 B (this is directly the Informa number for 2006 that we've quoted many times). The second largest group of revenues is MMOGs at 1.9 B. Then advertising on social networking sites at 835 M dollars and finally subscription and content revenues from (non-mobile) online social networking services at 280 M dollars. I do need to point out that I have tried to eliminate double-counting so ad revenues for Cyworld are not included in the content revenues for Cyworld etc. I also want to point out that there is severe overlap between the mobile social networking revenues and the non-mobile revenues, eg Flirtomatic makes more money out of mobile than fixed, but makes money out of both. Habbo Hotel is a free virtual online world of 8.5 million users, but makes most of its money from mobile premium SMS payments (and its revenues are counted as mobile social networking revenue but could be counted as fixed online social networking revenues). So the exact division of what is mobile, what is fixed may be subject to some interpretation. But since I have the Informa measured absolute number (by their defintion, which takes Habbo and Cyworld for example as mobile social networking revenue) then this is the nearest to exact that I can get.

It is however, good to notice that social networking on the PC based internet preceed the internet on PCs itself (having existed on "walled garden" BBS systems of that time such as Compuserve, AOL, Genie and Prodigy before they connected to the mostly then university and government used internet) being roughly 16-17 years of age as a mass market proposition (obviously early social networking existed on mainframes, my nickname HatRat originates from my Clarion University computer lab use in 1983-4 where I first discovered such treasures as email and jokes mailing lists ha-ha). If we combine the direct revenues from subscriptions and services, with the advertising revenues, then online social networks were worth over a Billion dollars for the first time in 2006, reaching 1.1 B. Slow but steady growth. Note that pure subscription and service revenues have plodded along very modestly to their 280 million dollar level by 2006. Were it not for advertising income, we wouldn't see billion-dollar purchases of the MySpaces and YouTubes and the like.

Advertising on the internet obviously started only in 1994 - when I was one of those radicals back then in my role as Director of Marketing for New Yorks' first Internet Service Provider, OCSNY, when I launched the world's first ad by a computer company onto the internet. It wasn't the first ad on the internet, but was definitely among the first 100 or so, and definitely the first by a computer company, quite possibly the first by a tech company. So while its a long way from the first ad on the internet to ads inside social networking sites on the internet, obviously, in some small way, I'm one of the great-grandparents of that 835 million dollar industry today. I had no idea obviously when we altered our Yellow Pages ad and reformated it to be our first Prodigy ad in 1993 - to severe condemnation - that then became our first internet ad also to enormous criticism. But lets see how this has grown. I would argue that online advertising within social networking sites was negligable in total revenues until 2004. So then, the advertising side of the revenues has grown very rapidly from near zero in 2003 to 835 million in three years. Thats very good indeed.

Multiplayer gaming started on computer networks also around 1993-4, with Doom releasing its LAN version (while Doom was available as a free game as a stand-alone, you had to buy the license to play the multiplayer version and the first version had a limit of 4 simultaneous gamers). I recall the multiplayer Doom appeared about 1993, but might be off by a year. It was a whole new experience in gaming, I remember vividly how addictive our network Doom sessions were back then - almost every one of my co-workers at OCSNY was a Doom fanatic at that time ha-ha. We had some great battles.. Eventually the MMOGs appeared (or MMORPGs Massively Multiplayer Online Role-Playing Games) and started to hit million and more users. Today's giants World of Warcraft have 8 million users and Lineage the colossus among MMOGs has over 14 million. But yes, 14 years of multiplayer online gaming and the industry has steadily growed and is worth 1.9 billion dollars. Thats quite good.

But mobile? The first mobile social networking service to go mass market was the mobile version of Cyworld in South Korea which launched in 2003. So prior to 2003 there was zero income out of social networking for mobile. But in only three years, it rocketed to 3.45 B dollars and today powers 55% of all social networking industry revenues. Every major social networking service has, or is developing mobile dimensions from Flirtomatic's cute romantic gifts to Habbo Hotel's Pocket Habbo to Flickr and YouTube mobile editions and now even MMOGs rushing into the mobile space such as Pirates of the Caribbean and Elven Legends. And yes - from zero to 3.45 B in three years? That is a world record, dear readers. The fastest-growing industry of all time. This year 2007 it will be between 5 B and 7 B dollars all by itself. And my guess is that as stories from innovators like Flirtomatic spread along, how much more money can be made on the mobile side - I wouldn't be surprised if the number is even larger.

Also please note that the above numbers exclude the sales of goods and services through these social networking sites. I am excluding the value of content sold on eBay, or for example all sponsorship revenue of star players of the world cyber games (yes, there are plenty of full-time videogamers with full corporate sponsorship, like star tennis players or racecar drivers etc) and also excluding the value of user-generated content sold within the worlds by "gold farmers" etc, itself another billion dollar industry which has grown from mostly the MMOG experience.

But yes. Total social networking industry worldwide? In round terms 6.5 Billion dollars. And growing by massive rates. Get into this game now. Oh, and PS - if you are a company thinking "what is this social networking or community, should I get into it?" - that is why we wrote the book. Read Communities Dominate Brands, the first business book for social networking and digital communities that covers it all, from blogging to MMOGs to mobile social networking. Its endorsed by very senior management from Coca Cola and Red Bull to Ogilvy and Publicis to emap and Korg. If you want to sample the book, send me an email at  tomi at tomiahonen dot com   and I'll send you the first chapter excerpt for free by return email.

Comments

[gina]

I agree

sites like facebook zooped.com myspace bebo.com make it very convenient for users to have the best of both worlds.

Some blog pages are already starting to adapt

mashable.com started their own social network built around their popular blog.

Blogs are dying, Long live social networking

[John]

I started a social networking site in Feb called schoolplaybook.com and already have been approached by investors. I signed a deal with Pringo.com to build the site for me, Site is in Beta right now and it will launch soon. I believe the social media market will reach to 25 billion by 2011. Myspace recent value of 12 billion is too low, I believe the site value will be 25 billion in 24 month.

[Tomi T Ahonen]

Hi Gina and John

Great to hear from you. Wonderful energy and excitement. John, good luck with schoolplaybook and do keep us informed how your venture proceeds.

Tomi Ahonen :-)

[J Perez]

Check this Great Social Networking Site www.biztoo.com

BizToo is a social networking site for entrepreneurs worldwide. BizToo is an online community that lets you meet new business contacts. It's also an online business marketplace and social business networking site where you can ask and get business advice form global entrepreneurs. Also BizToo helps business reach new frontiers by increasing Social networks

[Graeme Thickins]

This is an awesome post -- thanks, Tomi. I'm definitely going to email you for that sample chapter of your book.

Re: that BizToo site mentioned in the previous comment, another site for entrepreneurs that launched recently where I'm based (Minneapolis) is pretty interesting: www.PartnerUp.com. (I have no connection to it.)

[Dan G]

Hey i really enjoyed the post! Very informative. Wondering if anyone new how much a Social Network Site makes per AD (roughly) any information on the matter would be awesome! Thanks

[Dan G]

Hey i really enjoyed the post! Very informative. Wondering if anyone new how much a Social Network Site makes per AD (roughly) any information on the matter would be awesome! Thanks

[Online Community]

Online Community sites will have a place as long as the internet has palace in society. People will always use social networking tools to find new friends keep in touch with current friends and express themselves. That is why we created a new Social Networking website sociallive.com. This Social Networking sites is for 18+ only Social Networking website.

[Tomi T Ahonen]

Hi J Perez, Graeme, Dan, Online Community, Business Plan

Thank you all for the commments. Will respond to each individually as per usual on our blog

J Perez - thanks for mentioning Biz Too

Graeme - thanks. I hope you received the chapter, if not, please write me back, I have had some PC problems recently, should be all ok now

Dan G - good question, and I would say - irrelevant point haha, sorry... the 'immature' mobile social networks depend heavily on advertising, so they will tend to get a reasonable amount, but the moment they learn that there are 4 other ways to make money, then their revenue explodes and advertising becomes just one revenue stream, and in essentially all cases, a trivially small one.. Don't focus on ads for this opportunity, its a bonus income stream and if done with engagement marketing and user-co-created ad princples, can be good, but is not the basis of the business. Its like hte movies, yes they show ads, nut make their money with the box office income of movie-goers paying to see the movies...

Online - haha, yeah, I agree. And thanks for mentioning your community sociallive

Business Plan - thanks!

Tomi Ahonen :-)