Told You So: Social Networking on mobile EXPLODING, worth 3.45 B dollars in 2006

We love digital communities and social networking, obviously, as we set up this blogsite - Communities Dominate Brands - and wrote the book of the same name. And in the six hundred or so blog entries at this blogsite we've discussed just about every significant social networking site and digital community from eBay to Skype, from MySpace to YouTube, from Habbo Hotel to Worlds of Warcraft, from Flickr to Ohmy News, from 2nd Life to Twins Mobile. And on and on and on.

We celebrate digital communities, and cherish all the related phenomena, from smart mobbing to TV interactivity, from blogging to wikis, from podcasting to electronic dating.

Regular readers of our blog also catch our frequent "theme" that all digital community behaviour is migrating towards the mobile phone. That online dating is going mobile, that multiplayer gaming is going mobile, that bloggers are turning to moblogging, etc. Obviously we also point out the related stats and findings of these, from the stats of now over 38% of all South Koreans already actively mobile blogging (whereas 16% of Americans maintain traditional internet based blogsites); to the merger of internet virtual worlds and mobile phones like Habbo Hotel; the merger of interactive TV and mobile phone voting like Pop Idol/American Idol etc; to examining video sharing sites and the innovative SeeMeTV - where each video creator gets paid one penny every time his/her video is viewed; and the recent comparison that the South Korean Cyworld - that has just launched in America - is like MySpace but two years into the future.

Our site is not a "mobile" community site or wireless social networking site. We do follow all related digital communities whether on broadband internet, interactive TV, multiplayer gaming or mobile phones. But both Alan and I regularly also point out that the inevitable future of digital community behaviour - and thus the inevitable future of all social networking services - is the mobile phone. In a way, all the phenomena that we observe, can be "super-sized" when ported to the mobile phone, as Habbo, Cyworld and SeeMeTV so clearly illustrate.

So today the International Herald Tribune (23 Oct 2006) features a story entitled "Dial right up for photo sideshow" in which it examines the rapidly expanding picture sharing and video sharing sites and their user generated content. A very good story. But in it, the IHT also reports on an Informa report, that this year, 2006, the value of mobile phone based digital community services - user-generated pictures and videos on such sites as SeeMeTV, user-generated blogs and profiles and virtuality sites like Cyworld, etc - are worth...

...yes, mobile social networking services this year are worth...

...3.45 Billion dollars this year !  Wow. A bit of context. All of iTunes revenues last year were about 400 million dollars. TV-interactivity (voting for Big Brother, Survivor Island, Pop Idol etc) were worth 900 million dollars. Internet gaming revenues, all multiplayer games etc, were worth 1.9 billion dollars. All internet adult site revenues were worth 2.5 billion dollars in 2005. Two years ago - when we were researching our book, the total value of mobile digital community services was well below 200 million dollars. Today in 2006, the total value of mobile digital community services is 3.45 billion dollars. Wow. That is a true explosion in revenues. Oh, just to be clear - that mobile digital content revenue is more than all (non-mobile phone based) online social networking revenues combined. In only two years, the mobile side of digital communities has shot ahead of the online world. Amazing!

And this is still, when most mobile operators around the world are still "experimenting" with these technologies, launching primitive first-generation mobile blogging services and RSS feeds, SMS alerts to blog comments, picture uploading synchronizations with picture sharing services, etc. And the total phone penetration to fully capitalize on these services is low - ideally you need a 3G phone and subscription - of which there were 75 million last year, but over double that this year.

But yes, we can very happily tell you "we told you so." If you were reading our blog a year ago and just copied some of the ideas we talked about, and launched them in your country, you'd be a millionaire today.

But better than that, we said this already in our book, Communities Dominate Brands. There are of course dozens of wonderful books out already, that discuss blogging, or user-generated content, or viral marketing or social networking. But I have not seen one other book so far to discuss digital communities/social networking and then take the position that mobile will dominate this new phenomenon. We were very clearly the first to do so.

We made our case throughout the book. For example on page 25 we write, "While all other digitally converging technologies are significant, one is above all others. That is the mobile phone." And then on page 60 we write, "The examples we cite in this book of community behaviour are still the very early ones, happening much by trial and error. But the trend is inevitable. A connected community learns its power remarkably fast. The true empowering technology is mobile telecoms, and as such communities get involved with consumer action connected by mobile phone, soon all communities learn of the potential that communities wield."

And again to stress the point, as in the book and on this blogsite, that it is not the only technology for digital communities in the future, we add, "The mobile phone is not, however, the only communication method and communities will use increasingly multiple channels to share." So yes, the digitally connected consumer of today and tomorrow will co-exist in multiplayer online worlds, on broadband internet sites, interacting on TV, in chat rooms, using IM Instant Messaging, and of course also on mobile phones. But the most important platform for any community service will be the mobile phone.

So now we know. The fastest-growing type of digital service, by revenues, is social networking on mobile phones. Every CEO of a Flickr, YouTube, eBay, Skype, MySpace, Worlds of Warcraft, 2nd Life etc will need to immediately launch mobile extensions, variants, access methods, sharing systems and/or alerts to their online social networks, or else their more nimble rivals will shoot past them. The key to the future revenues of digital communities is the mobile phone. Like our case study of Habbo Hotel in the book so clearly illustrates.

3.45 billion dollars. Like Senator Everett Dirksen said, "A billion here, a billion there, pretty soon it adds up to real money." Cool...

UPDATE - There is not a deeper follow-up to this story, written one day later, entitled "Like SMS Before It, Mobile Social Networking on mobile is now a megabillion dollar killer app for 3G."

Comments

[Juhani Polkko]

$3.45B as in valuation from a entrepreneurs' perspective - yes! But as revenue figure... Heh heh :)

Unless, Informa figured out that in Japan and South Korea all the carriers have some kind of community twist in their SMS services. And I wouldn't be surprised if they did. Then, ok - but then the figure is only meant to sell their report.

If you do find out more about the contents of that report and where the figure comes from, it would be nice to know.

Cheers,
Juhani

[Tomi T Ahonen]

Hi Juhani

Thanks for the comment. Actually Informa (ie IDC) is one of the top most respected researchers in the IT/telecoms space, and their numbers are accepted pretty much as the industry standard (with Ovum and Gartner/Dataquest). I have great confidence in their numbers, Informa tend to err on the side of being conservative.

Actually these are quite in line with dramatic rise of Cyworld, its expansion, and similar services like Mixi in Japan. Cyworld is already used by 38% of all South Koreans - and has over 30,000 business enterprises selling over 500,000 items of digital content within it. Music alone sell 200,000 songs per day for consumption inside Cyworld.

And Cyworld has now launched in China, Japan, Taiwan (as well as America, Germany etc). So yes, this number is actually reasonable when analysed, while even to me, was surprisingly large.

Oh, the Herald Tribune article did break it down by geography, that out of the 3.45 Billion, 1.8 Billion is in Asia, with Europe second, with 721 Million of revenues.

The two biggest reasons for this incredible number - are the interest for the mobile telecoms industry to capture the "MySpace and YouTube" type of experience - so very many operators have launched social networking services. But differing from the online world, EVERY mobile digital community delivers actual user revenues from day one - totally differing from most online (ie internet based) services which mostly depend on building a large community and then selling advertising to them.

The second key is of course the sheer size of the mobile telecoms world. We're twice as large as the total internet world, and already more people have mobile phones than own cars, have credit cards, or TV sets. So in the economic scale, even if only 5% of mobile phone users are activated to consume digital content on a social networking site, that is already 125 million people - note more than twice the size of all shipped iPods over the past five years for example - and again, differing from web services like say a Skype - these mobile phone users are all accustomed to paying for every time they consume digital content (or participate in a service) on their phones.

Yes, surprising number, but honestly Juhani, I don't think there is hype behind these Informa numbers. That company is totally not known for hyping its reports; quite on the contrary, they tend to release some of the most conservative numbers in the industry.

But thanks for writing and please visit us again

Tomi :-)

[David Cushman]

Tomi, thanks for posting. The more of this I can gather the better the case for publishers to force themselves to understand and invest in social mobile networks!
I think there is huge potential for growth in what have been regarded as mature markets - by working to understand how those markets intersect with Generation C.
Can you say who is making all the money at the moment - and who is getting the biggest share?
Any examples of traditional publishers trialling and winning?

[OIM]

Excellent post. I will comment about your findings in my blog (sorry, in spanish).

I wanted to add a little commment on:

"these mobile phone users are all accustomed to paying for every time they consume digital content (or participate in a service) on their phones"

I would take that statement very carefully because I think that users only pay when the perceived value overpass the cost and that does not equal to just be on my mobile.

My 2 cents

[Tomi T Ahonen]

Hi David and OIM

Thanks for the comments. I have thought about it over the past 24 hours and have prepared a major thought piece around this. I am sure you'll find it enjoyable and hopefully also enlightening. I am posting it now

Tomi :-)

[Juhani Polkko]

Hi Tomi,

Thanks for the clarification - now it's easier to understand what's going on. From my perspective, social networking or community services will soon disappear as a separate category - it's clear that those features will be included to ALL successful digital content and media services in the near future. The main driver I think is the huge cost savings in marketing, as the users do that for you (Haven't had chance to read your book yet, but I'm sure this is one of your theses too).

So this is basically a categorizing problem we are talking about. Let's see - eBay recently launched the MyWorld community, and as soon as they launch that on mobile, their commission/fee revenues are added to the Informa's figure, right?

I didn't mean to mock Informa specifically, but I do look at these statistics (lie, bigger lie...) very critically. One of the reasons being the one discussed above.

I need to disagree with you with the comment that every mobile community delivers actual user revenues from day one. Ad-supported mobile services are growing fast, enabled by companies like Third Screen Media and GreyStripe, so the business model itself will soon be very similar to the one on the Internet. The users will be sooner and later realize that they don't have to pay for "every" click on mobile either, even though the billing channel is right there.

Other thought I had on that, is that I believe the winners will be cross-carrier mobile communities ("off-deck"), mainly because of the same reason that SMS took off: Interoperability across carrier networks. Carriers will probably realize this too late and adhere to the pay-model until it's finally blurt out.

Best,
Juhani

[Tomi T Ahonen]

Hi Juhani

Good thoughts. And obviously we are in much agreement. I too am most suspicious of any forecasts five years into the future. I still haven't got my flying car...

I agree the blurring of the line. That soon most services will have a "community dimension" much like most online websites today have a Search button and a feedback e-mail address or form. Separately there will be distinct social networking applications, like a massively multiplayer online game like Worlds of Warcraft, a virtual playground like Habbo Hotel and mobile blogging site like Cyworld.

I sense from your terminology ("off deck") that you are based in North America. That is where much of the "pollution" to the mobile internet is being generated. It reflects a massive misunderstanding of the mobile internet as the seventh mass media, and projecting assumptions from the inferior sixth mass media - the fixed landline (and broadband) based internet. In that world the only really viable revenue model (except for adult entertainment and gambling) is advertising.

To bring that "pollution" to mobile will totally pervert the viable honest, economicially viable business world of the mobile internet, with healthier revenue streams today (rather than advertising, gambling and adult, the biggest revenue streams in mobile internet are messaging, music and social networking ie sharing).

I don't deny the ability to generate SOME advertising powered services onto the mobile internet. But it is economically futile to build that business model. The total worldwide advertising industry is only half the size of mobile telecoms - today! And it is an absolutely certainty, that television, radio, print, billboard, internet etc advertising is not going to lay down and give up their revenues. They will fight back.

So even if we somehow assume one half of all advertising would migrate to the mobile internet, that would only cover a quarter of the industry's CURRENT revenues, before this industry grows to its trillion dollar size by the end of this decade.

Yes, advertising can power online (fixed) internet services. Yes, advertising can power SOME mobile internet services. But advertising is not big enough to power mobile telecoms. This industry is healthy today, it should build on solid business models, not on fantasies of a future advertising stream.

I don't mean to be very critical, but Americans totally do not understand what makes cellphones tick. I run workshops all around the world all the time. The American audiences are literally like walking back five years (or more).

And since they "know the internet" the natural instinct is to project internet thinking onto mobile. That is why all the fantasies around nonsense concepts like Blackberry (after five years only 5 million users worldwide, come on, that is one FIFTHG of one PERCENT of cellphone users. What a total waste. Same with iTunes. Americans know the internet very well, they think that model will work on mobile.

So on the opportunity to "shift" the business from the current, economically viable - and scalable - model of charging for use, to one that relies on advertising - I am most sceptical. I think it is the obsolete business model of the classic internet, and its time has come and gone. I was there, literally launching one of the very first ads on the internet in 1993 for OCSNY the first internet service provider on Manhattan (if you remember, the internet was on the cover of Time magazine in 1994, which is generally seen as the starting point when the internet became a mass market proposition).

That model has been milked, saw its peak at the dot-com bubble, and is really on its last legs. Today most of the advertising is shifting to targeted offers like Google's adwords, etc.

So yes, I hear you, some will try this - not unlike those many entrepreneurs who have launched advertising-sponsored free calls on mobiles - but I remain convinced this mobile internet is a more stable and economically viable platform, its successes will be built on more robust business models.

But we'll see, won't we. Thanks for coming back, and looking forward to more discussions with you. Did you notice I wrote a follow-up blog already for this story.

Tomi :-)

[Stuart Oliver]

Hi Tomi,
This is a great post. My only question, perhaps challenge, is whether mobile social networking is exploding or (still) about to explode.
I think there are so many opportunities for social netoworking on mobile devices, particularly when combined with basic, i.e. not gps, location information and yet there is nothing on the market at the moment - in the UK anyway.

Also, again focussed on the UK, are we fundamentally stifling our ability to innovate and lead in this market by having prohibitive data costs compared to other countries? Perhaps instead of the old phrase "America sneezes and we get a cold", in this market it will be "Japan sneezes and we get a cold".

Stuart

[Tomi T Ahonen]

Hi Stuart!!

Cool thought. Maybe the real explosion hasn't happened yet. Oh boy, I am doing some quick modelling in my head - running 3G phone penetration rates, phone replacement cycles, phone hand-me-downs to kids; then think total addressable 3G (and 3.5G) phone populations with Generation-C youth, and toss in learning delays, service imperfections, early too high pricing barriers; competitive effects. Yes, this could very well grow much more rapidly in the next two years than it has so far.

Maybe am too tired today, and should consider this with a fresh mind. But you have a very good point. This could be MUCH bigger still, where the "real explosion" has yet to come.

And on Japan sneezes, yes, I'd count South Korea in that group (but so would most count Canada as part of USA in terms of global economic activity, eg Blackberry being Canadian etc). Good idea. Like Karaoke, Sushi bars, Sudoku, why not....

Thanks for stopping by!

Tomi :-)

[Paschal Nee]

Tomi,

Like Juhani I am very sceptical about this 3.5bn number. With all due respect to Informa I think the number may have been quoted without context. Can you cite/link to the Informa report or the IHT article? I can find neither on their websites.

That said the points you make as to why 3.5bn might not be an unrealistic number at some point are valid.

Paschal.

[Tomi T Ahonen]

Hi Paschal

Thanks for stopping by. I read the original article in the print version of the International Herald Tribune and blogged based on that story, which is why there was no link. The web story was entitled differently (but the text of the story was the same) which may explain why you couldn't find it. The online version was entitled "A Cellphone sideshow: YouTube is going mobile". It is at this link:

http://www.iht.com/articles/2006/10/22/business/content.php

The actual Informa study split Mobile Social Networking ("Mobile Communities and User Generated Content") into two parts. Part one - user-generated communities like blogging, chat and dating. Part two - content centric communities like music fan clubs, videogaming communities (multiplayer) and TV/videosharing etc.

I think these are very relevant categories, totally consistent with our book and this blog - in our book we devote one whole chapter just to blogging, another to multiplayer gaming etc. And if we look at the previous numbers for the invididual elements, again the aggregate community and user-generated mobile revenues seem consistent. Mobile gaming was worth over 2 billion dollars last year, the majority no doubt were downloads of games, but several hundreds of millions no doubt would have been multiplayer mobile gaming revenues - and this is generally the fastest-growing part of gaming revenues (multiplayer) as its more addictive than single player gaming, and the revenues are formed on basis of usage, not on a one-time purchase basis.

Similar comparisons to chat, blogging, music fan clubs, SeeMeTV etc.

The Informa report abstract link is here:

http://www.gii.co.jp/english/itm40199-user-gen-cont.html

Thanks for stopping by

Tomi :-)

[Jeffrey]

Mobile social networks are the future. A loty of people are investing into a lot of mobile networks like peekamo because the demand and use has spread.

[Alan moore]

Dear Jeffrey,

Both Tomi and I agree.

A new media socio-economic ecology!

Thanks for posting

Alan

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