The new model media owners

At the height of the dotcom boom in 1999, Carlton and Granada spent £40 million on a joint venture with Ask Jeeves, the search engine, to launch Ask Jeeves UK. Three years later, they sold their stake back for £1.8 million.

Sound familiar? Observers of recent internet acquisitions could be forgiven for feeling a sense of deja vu. The past year or so has seen a second rush by traditional media owners to spend vast sums on internet properties that, as yet, do not appear to have the revenues to justify their price tags.

Last month, the US media giant NBC Universal became the latest to join the party, when it acquired the women's community site iVillage for $600 million. News Corporation paid just $20 million less for the social networking site MySpace.com last year, and later bought the gaming site IGN Entertainment for $650 million. In the past 18 months, The New York Times Company has acquired About.com for $410 million and Viacom has snapped up Neopets, a website for virtual pets, for $160 million.

But is there any basis for such substantial investment? Or are we witnessing another spate of mindless acquisition by media owners in an attempt to catch up with a market that has almost passed them by?

The answer lies somewhere bet-ween the two. Most of the sites have yet to reach profit and many have not even built a viable long-term business model. But for News Corp's Rupert Murdoch and his peers, investment in digital media is imperative because that's where the audiences are. "A new generation of media consumers has risen demanding content delivered when they want it, how they want it, and very much as they want it," Murdoch said in a recent speech delivered in London. "Newspapers must give readers a choice of accessing their journalism in the pages of the paper or on websites (or) on any platform that appeals to them."

It is this fundamental shift in the market that makes the difference this time around. The sites that are proving so popular (MySpace, YouTube and Bebo among them) are based on the concept of social networking and comprise huge communities of mostly young people, many of whom do not use traditional media.

In essence, a social network is a place where people create their own space, or homepage, on which they write blogs, post pictures or short videos about themselves and link to other web locations they find interesting.

For many, it's a way to create their own identity online, rather like the clothes they wear and music they listen to gives them an image in their real lives.

"This is a generation that wants to express itself online and create things," Jamie Kantrowitz, the senior vice-president of marketing and content for Europe at MySpace, says. "Their pages are like their online identity - if you went into their bedroom, you'd get a sense of who they are from the music they listen to, the magazines they read, the colour of their walls. Their pages are the same, just online."

Social networkers then "tag" the content they post with keywords they choose themselves, which makes their content searchable and effectively creates online communities of people with similar interests.

The big media owners are hoping to turn access to these communities into advertising dollars. This is where "tagging" comes in. These new links to user-generated content have the potential to improve vastly search marketing by opening up a different kind of content from that available through traditional search engines.

Stephen Taylor is the regional vice-president of search and search marketing for Europe at Yahoo!, which bought the picture-sharing site Flickr last year (see above) and has just launched Yahoo! Answers, a site that allows people anywhere in the world to answer questions posed by users.

"Say, for example, you are taking your children to New York for Christmas," Taylor says. "You've booked your flight and hotel but you want to take them ice-skating so you need to know which outdoor rinks are best for children. You can't find that out from a traditional web search but through social networks you can connect with people who know."

MySpace, meanwhile, is also exploring its search options and is planning to allow companies such as Google, Yahoo! and MSN to use its search functionality.

The information it holds on its members could offer advertisers a means to target people with relevant search links, based on what the media owners know their interests to be.

Outside of search, there are other opportunities for brands to create a dialogue with the social networks' audiences. Although most do take traditional banner ads, the interruptive model is not the best way to communicate with a young, media-savvy audience. Instead, brands are creating their own pages in an attempt to host conversations about their products.

MSN has its own social network, MSN Spaces, which it launched in December 2004. Cristiano Ventura, the business manager for Messenger and Spaces at MSN UK, which has run sponsored spaces with advertisers including 3 and Volvo, says that an opportunity exists for brands to communicate with very specific audiences.

"If the content is relevant and not salesy, users will embrace it," he says. "Advertisers just need to remember that they are going into users' space, so it's not appropriate to have ads all over the place, and that if you open a channel of communication with this audience you have to give it something that's relevant."

MySpace has been particularly proactive in creating these "branded communities".

"We can create a profile page for a product based on its brand qualities, and help advertisers to include things on there that other users will want to pull off and use on their own sites," Kantrowitz says. "Consumers want the tools to customise the media they're creating and if brands can give them that, they get to have a dialogue with the people they most want to connect with."

Honda, for example, has recently run a campaign on MySpace for its Honda Element marque, which offers consumers the option to customise the car they buy. The company created a MySpace page for the brand that asked users to submit their wallpapers - the backgrounds that people use to customise their MySpace pages - to the site to be voted on by other users.

The top 30 were then made available to download.

Each downloaded wallpaper contained an unintrusive logo that linked back to the Honda Element MySpace page, which in turn brought more users onto the site. To date, the page has been viewed almost 100,000 times and 42,765 users have set themselves up as "friends" of Honda Element.

"Young people know they're being marketed to and as long as the brand is upfront about it and gives them something back, they're quite happy about that," Kantrowitz says. "Those 40,000 people who made Element a 'friend' are now basically brand advocates for the car. They are happy to recommend it to their other friends. It's a huge recommendation network that brands can tap into."

Not just that, advertisers can also get an idea of what people think of their brands by monitoring what they post about them and, if they like, interacting with them.

But however attractive that might sound, this interactive element can scare off marketers - what if a user posts a rant against the brand on the site? Or links to a competitor?

Kantrowitz says such sites are self-policing, as users who have become a brand's "friends" are likely to push back against anyone talking out of turn about it. But when it comes to linking to other brands' content, marketers might just have to accept it. Nike, for example, has a MySpace page as part of its "joga bonito" campaign, which contains links posted by users to some of Pepsi's football ads. Rather than removing the links and risking users' criticism for censorship, Nike decided to leave them up there.

The sites' new owners are similarly keen to avoid being stigmatised as corporate. It is a major potential problem for Murdoch and his peers: will their valuable but notoriously faddy audience stick with the sites they are using now, or leave to join the next, "cooler" social network that springs up out of someone's garage? MySpace, in particular, has been criticised on blogs for what users see as interference by its new parent company (see box).

It is impossible to say who the market leaders in online networking will be in five years' time. But the big media owners have to follow their audience. And, for now at least, that audience is creating its own content online.

MYSPACE - $580m
Created: January 2004 - UK site launched April 2006
Ownership: News Corporation
Price tag: $580 million
Users: 81 million worldwide, three million in UK
Audience: Principally 16- to 25-year-olds
Key people: Chris DeWolfe, chief executive; Jamie Kantrowitz, senior
vice-president of marketing and content, Europe
Rivals: Bebo, YouTube, Friendster, Linkedin, Revver, Facebook
MySpace is a collection of millions of homepages designed by
individuals.

They use blog entries, pictures, video and links to share thoughts, opinions and stuff they find interesting with people from all over the world.

Created in early 2004 by the US-based 29-year-old Film Studies graduate Tom Anderson, MySpace has quickly evolved into the most talked-about and popular social network website. Globally, 250,000 new users sign up each day and the site now has more than 81 million members. It's this audience that enticed Rupert Murdoch's News Corporation to pay $580 million for its parent company in July last year, just 18 months after its launch.

Of all the social networks, MySpace is the most focused on generating advertising money - revenue analysts estimate it makes ad revenues of $13 million a month. It's not all good news though - since Murdoch bought the site, it has been plagued by accusations of corporatism. There are fears that its young audience will abandon the site in favour of a newer, cooler, less corporate alternative.

YOUTUBE - $150m+
Created: February 2005
Ownership: Independent
Estimated value: $150 million+
Users: Six million and rising
Audience: Officially 18- to-49-year-olds, but mostly 18- to 25-year-olds
Key people: Chad Hurley, chief executive officer; Steve Chen, chief
technology officer
Rivals: vids.myspace.com, video.search@yahoo.com, video.google.com,
grouper.com

One of the hottest properties yet to be snapped up by a big traditional media owner, YouTube maintains its independence thanks to support from the venture capitalist Sequoia, which backed Google and Yahoo! in their infancy.

The site is a place where people can watch and share video content. YouTube was conceived in California by Chad Hurley and Steve Chen, two former PayPal employees. More than six million people now use the site to share films of their interests, from the best way to eat a Jaffa Cake to more mainstream hobbies such as film-making.

So what's the business model? According to a report from the market research company IDC, online video could generate $1.7 billion in revenues by 2010 from a base of around $200 million in 2005. Revenue could come from film companies or other content providers, who could upload teasers for longer films or TV shows.

And although its ad model is still nascent, the company has identified ad revenues as key to its development. "YouTube is pursuing advertising as its business model, and is exploring possibilities including promotions, sponsorships, banner ads, etc," a statement on its website says.

FLICKR - $35m
Created: February 2004
Ownership: Yahoo!
Price tag: $30 million-35 million
Users: Around 400,000 members
Audience: Undefined, but more diverse than many other social sites
Key people: Stewart Butterfield and Caterina Fake, co-founders
Rivals: Tabblo.com, Smugmug.com, heypix.com, buzznet.com

Flickr became a social network almost by accident. It was launched in February 2004 as a place for people to chat about photos, but user feedback encouraged its evolution into a platform to share your photos with the world.

It was launched by the husband-and-wife team Stewart Butterfield and Caterina Fake for a mere $250,000 after the dotcom bubble burst. They sold it last year to Yahoo!, for an unconfirmed sum rumoured to be in the region of $35 million. Not bad for an accident.

The tools available on the site are what has made it so popular - particularly the "tagging" function that it shares with other social networks. Users can "tag" their photos with keywords, meaning users with similar interests can find their content by using a keyword search.

It is this functionality that attracted Yahoo!, according to Stephen Taylor, its regional vice-president of search and search marketing for Europe. "We already had a photo site and image search capabilities but the real opportunity is in moving beyond one-dimensional search and into a way to access huge amounts of user-generated content," he says.

FRIENDS REUNITED - £175m
Created: July 2000
Ownership: ITV
Price tag: £175 million
Users: 15 million
Audience: Twenty- and thirtysomethings
Key people: Julie and Steve Pankhurst, founders; Michael Murray, chief
executive;Tim Ward, marketing director
Rivals: Bebo, Facebook, has acquired its Australian rival Schoolfriends

The daddy of the social networks, which launched in 2000, Friends Reunited was acquired by ITV in December 2005 for an upfront payment of £120 million with further payments reaching a possible £175 million.

As well as the core site, Friends Reunited also runs a genealogy offering, Genes Reunited, a job site, a dating service and a chat site.

Since the sale, the site has signed its biggest advertising deal ever, running ads for T-Mobile across members' homepages. However, according to Charles Allen, the ITV chief executive, the deal was part of the broadcaster's strategy to grow its business outside ITV1 and diversify into digital media and the sort of online local communities that are threatening local newspapers.

"It's about content, stupid," Allen said at the time. "Classified advertising is worth £2 billion a year in the UK. We see buying Friends Reunited as part of a strategy to access these revenues." The channel is also looking to leverage the Friends Reunited brand by broadening it out to more traditional platforms. It recently launched ITV Play, a new ad-free quiz TV channel, featuring a Friends Reunited show called The School Run. which airs at 6pm every day.

IVILLAGE - $600m
Created: Launched its first site, Parent Soup, in 1995. UK site launched
December 2000
Ownership: NBC Universal
Price tag: $600 million
Users: 14.5 million
Audience: 25- to 54-year-old women
Key people: Angus Glover Wilson, UK general manager
Rivals: Women's sites such as Handbag.com

iVillage is an online community for women that contains articles, message boards, blogs and quizzes under sub-headings such as "pregnancy and parenting" and "love and sex".

The UK version launched as a joint venture between Tesco and the US-based iVillage parent company, but Tesco later bought out iVillage's stake in the UK address then sold it back. In March this year, the parent company was bought for a staggering $600 million by NBC Universal, which had a strategy to use the brand to create a platform to access men and other new communities outside its core women's market.

The company will also stream video content of its TV shows on the site.

One of the attractions for NBC was the site's well-developed advertising offering - it has run campaigns for a roster of brands from the food, automotive, entertainment and retail sectors.

For example, the UK site recently partnered with Nescafe to launch branded content in support of its £4.1 million above-the-line campaign featuring Trinny and Susannah. The site asked people to submit a photo of themselves to get advice from the fashionistas and give other users the chance to post comments on how they look.

BEBO - $100m+
Created: July 2005
Ownership: Independent
Estimated value: $100 million+
Users: 24 million worldwide, 4.5 million in the UK
Audience: 13- to 24-year-olds
Key people: Michael Birch, founder; Jim Scheinman, vice-president
Rivals: MySpace, Friendster

Bebo, the site that some are calling the next MySpace, is a network site for children and young people founded by the British internet guru Michael Birch and his wife Xochi. Though it remains independent, it recently received its first big influx of cash - $15 million in funding from the venture capital company Benchmark.

Nevertheless, in comparison with Murdoch's MySpace, Bebo's resources are limited. It has a handful of employees based in San Francisco and plans to open an office in London and expand its US operations. But size doesn't matter so much in this new online space, and the buzz around the site is such that it overtook its giant competitor as the UK's biggest social networking site for a heady (if brief) period this year, according to Hitwise.

A bit like Friends Reunited, Bebo is based around school and university communities, which means it can spring very quickly to popularity within a small area. Children are particularly into it and, as a result, the site is a potential honeypot for advertisers.

In the UK, it recently moved to allow brands to create branded "skins" or designs that users can overlay on their home pages. Like MySpace, it also targets users whose homepages have the greatest amount of visitors and tries to persuade those people to take advertising.

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1 Job description: Digital marketing executive

Digital marketing executives oversee the online marketing strategy for their organisation. They plan and execute digital (including email) marketing campaigns and design, maintain and supply content for the organisation's website(s).