The Economist has just published a 14 page special report on Social Networking – we’ve summarised it for you here in a Speed Summary (that includes the key charts from the report). You can download an archived version of the full 2010 Economist report Social Networking: A World of Connections here.

It’s worth a read – not for any ground-breaking insight – but because the report highlights where the business radar, enthusiasm (and therefore investment) is currently focused in this area social media.

For those without the time to wade through the 9 articles, or even read our speed summary below, here are our 3 big takeouts.

1) The big social networking opportunity for business lies in improving internal/partner communication and collaboration
2) The future of social networking is Facebook Connect on your cell phone (location-based portable social graph)
3) For marketing, Facebook is not a social networking platform, it’s a social CRM platform

Article 1 (Overview) – A world of connections

Top Takeout: Social-networking technologies help future-proof businesses for the emerging era of global interconnectedness that will spread ideas and innovations around the world faster than ever before.

  • The Word Economic Forum may at Davos may named it’s fledging social network WELCOM (World ELectronic COMmunity), but the real World Electronic Community is Facebook; 6 years old, 350m users, 55m updates/day and 3.5bn content shares per week
  • Whilst people spend more time communicating on social-networking sites than on e-mail, large social networks such as Facebook are synonymous with “notworking” at work; only 10% of companies give employees full access to such networks at work.
  • Loss in employee productivity and risks associated with confidentiality have lead to the rise of a new niche in business-oriented social networking tools (dubbed “Enterprise 2.0”) for internal communication. Examples include  Chatter (Salesforce) and Yammer.
  • From a business perspective, Facebook has to prove itself in 2010 – that not only does it have a viable business model, but that it is delivering on it and generating real returns on investment.

Article 2: Global swap shops – Why social networks have grown so fast and how Facebook has become so dominant

Top Takeout: Facebook is the leading social networking site, with future growth opportunities in delivering market intelligence based on sociometry. The risk however is that it loses members by shifting its focus from helping people connect with each other toward ancillary services (such as content creation)

  • The rise of Facebook can be explained by 6 factors
    • The Network Effect (value of a communications network to users rises exponentially with the number of people connected to it)
    • Hardware/Software Costs – Massive fall in hardware and software costs to store and process data
    • Privacy Controls – Fine-grained user controlled privacy settings (yes, Facebook was voted in top 20 most trusted companies on privacy issues last year)
    • Ease/Joy of Use – simple user-centric non-threatening interface and environment; 2.5 billion photos a month are uploaded to Facebook, making it one of the largest photo-sharing sites on the web.
    • Facebook Applications – that extend the functionality of the platform (there are now 500,000 FB apps)
    • Facebook Connect – Extending the functionality to third-party sites to benefit businesses and users alike (there 80,000 Connect-enabled websites and devices, such as Microsoft’s Xbox console and the Netflix site (see rentals of your social circle)
  • A future opportunity for Facebook may lie in delivering market intelligence through sociometry (quantitative study of social relationships (the map of nodes (people) and links (relationship) that is dubbed “social graph”)
  • The threat for Facebook is losing focus on what it does best – the basic plumbing that helps people connect with each other. Offering additional services and content could lead to a MySpace destiny (RIP MySpace dropped 30% in last 12 months)

Article 3: Twitter’s transmitters – The magic of 140 characters

Top Takeout: The growth of Twitter – the popular micro-blogging service that works like group SMS service – is slowing in US, but strong elsewhere. The challenge for Twitter is monetizing the data and service without losing popularity

  • The micro-blogging platform Twitter had attracted 58 million visitors by October 2009.
  • Twitter delivers – in the words of co-founder Biz Stone “social alchemy” – serendipitous communication that turns out to be useful (like learning that someone you are following on Twitter happens to be in the same area as you)
  • Apart from the trademark 140 character maximum message size on Twitter, the two key deferences are;
    • a) communication on Twitter is public, whereas on Facebook it’s private (between friends)
    • b) Twitter is text based (micro-blog, group-SMS), whereas Facebook is more multimedia oriented (photo/video sharing)
  • More than half of Twitter users haven’t ‘tweet’ less than once every 74 days, and growth has slowed in the US. But the big challenge for Twitter is how to monetize the data and service.

Article 4: Profiting from friendship – Social networks have a better chance of making money than their critics think

Top Takeout: Social networks have yet to offer a compelling advertising solution (people ignore ads on social networking sites), but social network advertising may boost overall advertising effectiveness in generating awareness when combined with television advertising. The challenge is to generate new revenue streams from e-commerce sales of virtual/digital, sponsored currencies, deals with search engines, more innovative forms of advertising and premium services.

  • Social network sites are businesses without a business model (in the world of social networking URL stands not for Uniform Resource Locator web address, but a strategy Ubiquity first, Revenue Later (build user-base now, think about how you’ll make money later).
  • The challenge is simple; find an advertising-based business model that works:
  • The case against: users currently ignore ads on social networks (as they do in emails) – perilously low click through rates attest to this, whilst advertisers are wary of appearing alongside user conversations often involving profanity, obscenity and/or nudity.
  • The case for: The size of Facebook and some of its rivals dwarfs any the largest television network – and advertising on social networks supports laser-like targeting. Additionally, new data shows that advertising on social networks may be able boost TV advertising effectiveness (in creating awareness) – (so it’s not all about clicks).
  • Currently ad revenue for Facebook is IRO $500m (est.)
  • The future advertising opportunity for Facebook is innovative ad solution such as interactive “engagement” ads that collect and curate user content, sponsorship deals for content and applications such as social games (multiplayers), and e-commerce revenue from virtual/digital gifts. Sales of virtual gifts topped $1 billion last year and is set to $1.6 billion in 2010.
  • In addition to ad-revenue, Facebook and other social networking sites could charge users for premium services (so-called freemium model) such as those already sold by LinkedIn (lifting restrictions on who you can contact or offering enhanced member search (e.g. for recruitment)). Deals with Google and Bing to list member content could also boost revenue

Article 5: A peach of an opportunity – Small businesses are using networks to become bigger

Top Takeout: Low cost of entry/participation and ease of use means that small businesses can use social networking sites to do advertising, market research, procurement and even generate ideas for new products to sell.

  • Advertising: Advertising by posting a promotional newsfeed on social networking sites can be cost-efficient and effective – saving small businesses up to $8000 on other forms of advertising. Business has improved at Mission Pie, a small shop San Francisco started tweeting promotional events. Sprinkles, a cupcake bakery with stores all over America and nearly 94,000 fans of its Facebook page, posts a password to that page each day which can be redeemed for a free cake by a certain number of visitors to its shops. The key is to offer exclusive deals to people who follow you – a 2009 Razorfish study found that the main reason people follow brands on social networking sites is to get exclusive deals (Razorfish study)
  • Market Research: Some small businesses are also using social networking chatter to do market research and identify new opportunities (e.g., a small American clothing company identified a local need for reflective bicycle clothing).
  • Procurement: Social networking sites can also be used to source new products to sell (e.g. a plug-in battery for iPhone (3G Juice))
  • New Business: Social networking sites can be platforms for launching digital entertainment businesses (e.g. “social games” companies such as Zynga, Playfish, Playdom – a category with a projected revenue in US of $2.2 billion by 2012)

Article 6: Yammering away at the office – A distraction or a bonus?

Top Takeout: Private social networking tools designed internal/partner business communication are an increasingly popular tool for breaking down internal communication barriers, reducing work duplication and harnessing employee knowledge and ideas. Key to continued success will be to put hard numbers behind the benefits, and to assuage fears that employees might communicate inappropriately or set up unwanted social groups.

  • Social networking site cost 1.5% in terms of reduced employee productivity – in the UK social networking sites cost businesses $1.3bn a year. But short of banning mobile phones from the office (mobile is becoming the dominant means of access), there is not a lot employers can do.
  • The challenge for business is to see social networking at work as an opportunity not a threat – using the culture of communication and sharing to break down internal communication barriers – regional, product-line and functional silos. Private social networking sites on intranets can help reduce information hoarding, work duplication and missed opportunities. For example, following criticism of poor information sharing, US intelligence agency has created A-Space, a Facebook for spies, to share intelligence
  • Social networking sites can also break down external communication barriers. For example Amazon’s Zappos retail subsidiary, encourages employees to communicate with customers on public social networking sites – putting a human face on otherwise faceless corporate entity. They are free, familiar and easy to use, allowing for quick adoption.
  • However most businesses are wary of allowing employees to communicate with customers – either for fear of letting slip confidential information, or inappropriate communication. So-called Enterprise 2.0 tools include private social networking applications and discussion boards for employees and partners (e.g. IBM’s Lotus Connections,’s Chatter, and Yammer (private Twitter clone for business)).
  • It’s early days – but companies such as Danone and Océ (printers) say it’s paying off in terms of reducing overlap, spotting opportunities, and sharing best practices. Private social networking tools also help capture distributed knowledge and identify distributed expertise. In other words they provide social business intelligence
  • However, there are two big challenges for harness social business intelligence through enterprise social networks
    1. Demonstrating the business case – real $ value, hard ROI, rather than soft benefits (NB a recent study showed that knowledge workers spend 6-10 hours per week hunting for information; if social networking can demonstrably reduce that then the business case is made.
    2. Overcoming fear – that employees will communicate inappropriately, or set up distributed Al-Qaeda-like networks that could challenge management and that are impossible to control

Article 7: Social Contracts – The smart way to hire workers

Top Takeout: Social networking sites for professionals such as LinkedIn are compelling recruitment and career management tools (and unlike Facebook, they are already turning a profit)

  • Professional social networking tools such as LinkedIn, Xing, Viadeo allow workers to participate passively in the job market, and remain open to opportunities whilst in employment
  • Professional social networks also allow workers to discuss industry-related matters with people with in other companies with a similar profile, interests and concerns
  • For businesses, professional social networks are a useful recruitment tool; visited more frequently than job-boards, and put a human face to the CV.
  • 45% of recruiters look at candidates social network profiles as part of research – 1/3 had eliminated candidates based on what they’d seen

Article 8 – Privacy 2.0 Give a Little, take a Little

Top Takeout: Most people who use Facebook and other social networks seem prepared to accept the idea of targeted advertising as the price of getting free access to the service

  • Privacy is the one issue that could halt the ascent of social networks.
  • The balance to be struck is between offering users enough privacy settings to grow the user base, and restricting privacy enough to attract advertisers looking to target users.
  • 60% of adults restrict access to their online profiles, but Facebook’s Mark Zuckerburg argues that social norms are changing and people increasingly happy to share information about themselves.
  • By giving users control over their privacy settings, social networks are an improvement on “behavioral advertising” on the open web, where people’s behavior is tracked without permission.  The promise of relevant, timely and useful/entertaining advertising may convince users to share data with advertisers

Article 9: Towards a socialised state – The joy of unlimited communication

Top Takeout: The future of social networking is Facebook Connect on your Mobile (a portable “social graph” that you can plugin wherever you go)

  • Mobile is the next frontier for social networking – allowing people to connect with people and objects wherever they go
  • Phones are already the device of choice for accessing leading social networks in Asia
  • The vision of social networking is the same as the original vision for the Web; Founding-father, Tim Berners-Lee maintains that the internet was always meant to be more of a social creation than a technical one with the ultimate goal of coming up with something that, first and foremost, would make it easier for people to collaborate with one another
  • Social networking sites are making this vision a reality by having
    • a) created trusted online venues where people can meet up using their real identities
    • b) provided firms with new ways to reach their customers and those who influence them
    • c) reduced friction in the labour market by allowing employers and prospective employees to connect more easily than ever before.
    • d) speeded up the flow of information within companies.

But most importantly, social networking has…

e) offered a free and immensely powerful set of communication and collaboration tools to everyone on Earth who has access to a broadband internet connection – fundamentally changing the way that people interact with one another, as well as with businesses and governments. With a few clicks of a mouse, anyone can form a globe-spanning discussion group of their own – something a few years ago that would have been the preserve of an elite group of organizations. Social networking is democratizes, empowers and is a force for good

Report Charts