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Teenagers

Posted on Friday, Jan 5th

Teenagers are trendsetters and are early adopters and they total 33 million in the U.S. They are also aspirational in nature. They prefer to stay ahead of the pack. Research shows that 67% of the teenagers in the U.S. own a mobile phone and 45% of them have iPods. 32% of the teenagers play computer or video games frequently. According to CBSNews.com poll, teenagers on average spend 2.9 hours surfing the Internet daily and are among the most avid users of the Internet.

87% of the teenagers log on to the Internet from their home whereas around 75% of the teens log on from school or a friend’s house. The Internet is a vital part of the teenagers’ education process and 90% of the teens in the U.S. use the Internet to research school assignments. 88% of the teenagers’ use the Internet for email, 82% Instant Messaging, 68% social networking and 60% download music. Compared to 16% of adults, 28% of the teenagers have blogs and it is an important medium for them to share personal news and commentary.

According to reports published by USA Today an estimated 65% of undergraduates in US colleges are members of TheFacebook.com and an approximate 900,000 high school students hold accounts with either MySpace.com or Xanga.com. Teenagers dislike intrusive advertising but don’t mind brand messages and product placements, if they are informative or are subtle, especially, humorous.

Teen Favorites

According to Teenage Research Unlimited (TRU) 34% of the teenagers aged 12 to 19, ranked MySpace.com as their favorite website. Yahoo.com was second with 19% votes and Google.com claimed the third spot with 14% votes. They use Google.com and Yahoo.com to either check mail or search material for their assignments or stuff that they would like to buy or are curious about.

Social Networking is very popular among the teenagers and most of them spend on an average one hour daily to either post or read postings. MySpace.com, TheFacebook.com, Xanga.com and Tagged.com are the most popular social networking websites among the teenagers. Video and photo-sharing websites like YouTube.com and Flickr.com are fast catching on with the teens, who are creating profiles and sharing their videos and photo collections. iTunes is another favorite of the teens. Sports sites like ESPN.com are popular among the male teens.

The top 9 websites visited by the teenagers frequently and their Alexa rankings are:
Top Ranking Teenagers Web Sites

Why Teenagers?

Teenagers are not into online shopping as only 6% shops online. However, they do spend a lot of time researching products online, which they intend to buy. Teenagers directly and indirectly control billions of dollars in purchasing power and according to TRU, teenagers helped spend around $159 billion in 2005 and this amount is expected to grow by 5% CAGR in the next 5 years. Since teens spend a lot of time online, marketers want to use the Internet to grab the eyeballs, create brand awareness and build brand loyalty among the teenagers who influence family purchase decisions.

Such has been the popularity of the Internet media that Teen People a popular teenage magazine has withdrawn its print edition and decided to concentrate on its website ONLY. According to TNS Media Intelligence advertisement revenues for TeenPeople.com has grown six folds from 2004 to 2005 indicating a strategic shift in advertising and elevating the Internet as the most preferred medium. Elle Girl also withdrew its print edition and is currently available only on the Net.

Teenagers today spend more time (average 2.9 hours) on the Internet than they spend reading newspaper or magazines. Online newspapers and magazines along with blogs are more interesting and spontaneous for these next generation kids as it provides them with an interactive platform to share views across the globe. eMarketer forecasts ad spending on social networking to reach $2 billion by 2010 and projects video ad spending to rise 82.2% in 2006 and 89.0% in 2007.

Prospective employers, college admissions offices, and marketers are logging on to social networking websites like MySpace.com to gather information about the teenagers and to fine tune their product and service offerings according to the teenagers’ preferences. These websites give a very good idea of what’s their on the teenagers’ mind. As teenagers discuss among themselves, marketers can find out, which sports, food, apparel, gadgets, cars are on the top of their mind.

Business Model

A large portion of the advertising dollars are shifting from traditional mediums like print and television to the digital media. Video game companies have radically shifted their marketing dollars to the web, and in fact, they are themselves becoming good places to advertise, as inline advertise in computer games become popular.

According to Fuse a youth-marketing agency, online advertising is much cheaper than other forms of advertising and could be done with a budget of $2,000 to $3,000. According to experts online advertising provides more bang for every dollar spend than print or television.

Advertisement revenues are the main source of revenues for these websites. The advertising rates for Yahoo start with low minimum monthly subscriptions ranging from $10 to $50. The average cost per click for teenage category is $0.12 while the overall cost per click is $0.07, which implies the cost-effective pricing for advertising space targeted at teenagers. Advertising can be placed on most websites with a budget of $3000. Attractive discounts are offered to advertisers with budgets over $10,000.
Ad Rates of some Teenagers Web Sites

Social networking has experienced phenomenal growth in the past year and marketers are more than willing to associate with them as they see it as a wonderful opportunity to reach out to their target customer. U.S. ad spend on social networking is expected to be $865 million in 2007 and MySpace.com will account for $525 million or 60% of the total ad spend in 2007.

Though social networking on the Internet is a huge success, most of the websites are burning cash today and it will take a while before they generate profits. ClassMates.com a social networking website, which attracts around 125,000 visits daily and has over 3.5 million registered members from 30,000 High Schools, is a profitable venture.

Venture Capital, M&A and PE Activity

With the strong growth in revenues and profits of new age media companies like Google and Yahoo and the soaring popularity of Internet businesses like MySpace.com and YouTube.com, Venture Capital and Private Equity Firms are back scouting and investing in similar Internet businesses, especially those targeted at the youth. The social networking space targeted is experiencing a lot of investment from venture capitalists. VC’s expect Internet to be their preferred medium of communication. Teenage social networking is a niche segment that has exhibited significant growth in the past two years.

Below are details of some VC fundings of websites that are targeted at teenagers:
Vc Fundings of some Teenagers Web Sites

[Note: Friendster number is the recapitalized number.]

Rupert Murdoch’s News Corporation bought MySpace.com in mid 2005 for $580 million and today it is the fastest growing social network with over 140 million users. Google bought out YouTube.com in October 2006 for $1.65 billion. United Online acquired Classmates.com for $131.4 million in November 2004.

Competitive Market but Opportunity in Niche

Major media companies like Google, Yahoo, Viacom, News Corp. and AOL are all trying to woo the teenagers. Everyone wants a piece of the pie and so the Internet is full of clones of social networking, video and photo-sharing sites and with start-up costs low and VCs more than willing to fund new ventures in this space, it has resulted in over-crowding of the space. 2007 is expected to witness fierce competition in the social media space, and a lot of carcasses.
Behavioral science shows that teenagers are fickle-minded and tend to change their tastes frequently. It is tough to hold on to their interest levels.

There is opportunity in niche websites targeted at teenagers as they spend a lot of time surfing the net. Research by Youth Trends show that young teens prefer visiting sites dedicated to them. If they are provided with quality, dynamic content, user friendly interface, with a chance to interact and play among themselves, it will appeal to them. Flip.com, a niche site for teenage girls by Publisher Conde Nast is slated to be launched in 2007, plans to do just that. Social networks still do not have adequate ROI metrics and this could be an opportunity for new generation networks to attract advertising dollars by leveraging the strength of their parent companies. In this case, CondeNast owns the popular fashion magazine Vogue, which might be able to direct both important celebrities, content and key advertisers their way.

Conclusion

Teenagers are being chased by the entrepreneurs, media companies and advertising dollars. iPod and iTunes became a massive hit by using the teenager segment as their penetration point. It remains to be seen who else does a comparably good job in leveraging this segment’s tremendous online presence and early-adoption capabilities. Obvious players in the Education industry are dogs, and sadly, they have not at all woken up to social networking’s significant potential in educating teenagers.

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[…] And for an overview of what’s happening in the College Kids segment, take a look at the next report from the Segments & LifeStyles section. For Teenagers, the landscape is somewhat similar, but with some interesting developments, with major Print magazines shutting down in favor of their online strategies (Teen People, for example). […]

Sramana Mitra on Strategy » Blog Archive » Online Focus Groups Friday, January 5, 2007 at 7:24 PM PT

[…] And, they need to be segmented 3C. Not the haphazard, all-over-the-place 3C that Yahoo has today, which makes it impossible for a Sales Rep / Account Manager to have a structured conversation with an advertising customer. If I am a Nike Brand Manager, and I want to market to 3 segments : College Kids, Teenagers, and Pre-Teens, Yahoo’s properties are not organized in a way that allows me to understand how to distribute my money amongst these properties. And Yahoo’s Sales Reps cannot explain. They don’t know themselves. […]

Sramana Mitra on Strategy » Blog Archive » 4C: The Yahoo Turnaround Formula Friday, January 12, 2007 at 1:53 PM PT

[…] Women, Parenting, etc. which they don’t have at the moment. They are also weak in the Teens, College Kids, and Pre-Teens […]

Sramana Mitra on Strategy » Blog Archive » Online Advertising: More Acquisitions Friday, May 18, 2007 at 9:02 AM PT
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