Close-Up: Live issue - Marcoms giants dabble in social networking

Following IPG's acquisition of 0.5 per cent of Facebook, John Tylee asks why the holding companies are being so cautious.

Five years ago, they barely existed. Today, social networking sites are growing at a relentless pace. And the communication supergroups are starting to take notice.

But only up to a point. The investments made recently by WPP and Interpublic in LiveWorld and Facebook respectively suggest both are testing the water so gingerly that they are barely getting their big toes wet.

IPG has bought just 0.5 per cent of Facebook; while WPP is forking out a modest $2 million to form a joint venture with LiveWorld.

Why the safety-first approach? Surely social networks represent an unprecedented opportunity for brands to interact with that perpetually elusive 19- to 24-year-old age group? Yet the marcoms giants are in no hurry. Enthusiasm is tempered by memories of the "gold rush" that preceded the dotcom collapse. "Digital literacy is poor within the major communication groups," Rick Bendel, the Publicis Worldwide chief operating officer, acknowledges. "The problem is that the level of interest by clients isn't reflected by the income. We don't know how to make money from it."

At the same time, they feel they cannot risk doing nothing. Certainly not after Rupert Murdoch's News Corporation sent a shockwave through the media world last summer with the $580 million purchase of MySpace. With a predominately young worldwide audience of 40 million, the site has already demonstrated its influence by launching the musical careers of Arctic Monkeys and, more recently, Lily Allen.

Not that everybody in communications groups is impressed. A top Havas executive says: "We want to be at the cutting edge, but social networks are a small sector and we're more interested in building our core business."

Publicis Groupe has adopted what it believes is a more flexible approach. It has set up Denuo, a company that seeks out digital partners, ensuring that it gets first rights on the most promising. The latest is the US user-created ad platform ViTrue, which joined the Denuo fold last week. "We believe social networks are a long-term trend," Rishad Tobaccowala, Publicis Groupe Media's chief innovation officer, says. "What we don't know is who the long-term players will be. These companies need us as much as we need them."

A cynical Omnicom insider suggests IPG's initiative is more an attempt by the strife-torn group to get some positive PR. "It's like buying half of 1 per cent of Chelsea FC. It doesn't even get you a decent seat at the game."

Naturally, Michael Roth, the chairman of IPG, begs to differ about the relationship with Facebook. The site is available only to high-school and college students and is one of the ten most-visited sites in the US. "Facebook's users represent a difficult-to-reach but very key audience for many of our clients," he says.

IPG and WPP have similar objectives for their respective deals. IPG wants to leverage the Facebook site as an ad platform and has committed a $10 million adspend in exchange for access to Facebook's consumer data.

WPP wants LiveWorld, founded ten years ago by the former Apple senior executive Peter Friedman, to build social networking into campaigns. "If people are talking about you online, then they are talking about you offline," Friedman told The Wall Street Journal last week. "So you create all this word-of-mouth buzz."

Mark Read, WPP's strategy director, refutes suggestions that what is happening is the first tentative step in communications groups becoming media owners.

"This is just another weapon in the armoury of creative marketing," he explains. "Clients are very keen to find out what they can do online. It's up to us to ensure their input is creative and that they get a return on their investment."

Read believes the challenge will be to find ways to build audiences for the kinds of advertisers that do not necessarily make online part of their media schedule. One such advertiser is Campbell's Soups, which has a section on the LiveWorld site where people can trade recipes. Nike has also scored with its "joga bonito" World Cup campaign, which became one of the most popular search items on the YouTube site during the recent World Cup.

But such moves will need to be carefully thought through. George Bryant, the head of planning at Abbott Mead Vickers BBDO, claims: "Most brands that buy their way into social networks look about as cool as dads at youth-club discos."

Of course, all this assumes social networking sites will not go the way of the hula-hoop. The most positive sign of their longevity comes from South Korea, generally regarded as five years ahead of the rest of the world in internet development. The social network Cyworld is used by an astonishing 90 per cent of South Korean twentysomethings.

The downside is the threat of a backlash against such sites. Some users complain about the constant nagging to validate friends. More serious is the threat of "identity theft" and the fear that the arrest of two men by the FBI earlier this year on sexual assault charges allegedly connected to the use of a social network site may not be the last.

"Such sites work because there are no rules," Graham Bednash, the managing partner of the communications specialist Michaelides & Bednash, points out. "No wonder WPP and IPG are not putting their houses on the line."