College Kids

The inevitable has happened. In November, MySpace.com took over the number one spot from Yahoo! for maximum number of page views in US. Page views for MySpace.com have gone up 200% in the last twelve months. According to Hitwise.com, MySpace.com is ranked number one and Facebook.com eleventh, based on US Internet usage for November 2006 and MySpace is the most searched website on the Internet in U.S. The college kids are taking advantage of the Internet technology to network with people across the globe.

College kids spend just as much time touring the landscape of the Internet as they spend offline, discussing the wonders of the web. When they meet someone, they do not call them back but “scrap” them. They scour the Internet for profiles on MySpace.com or Facebook.com. Attending career counseling has become passé; they would rather join Ryze.com or LinkedIn.com to meet corporate gurus to take advice for career plans. A search for “college kids” on Google generated 106,000,000 results, which signifies the amount of activity and interest in the college kids who are an important target market for the new age media companies and marketers.

Trends, rankings and patterns

In November 2006, Anderson Analytics conducted a survey on the most popular websites amongst the college kids. MySpace.com topped the list and Facebook.com was a distant second. YouTube.com was the third most-visited site of the year. The survey ranked Collegehumor.com and Google.com as the other two most-visited websites. Is it surprising to see that the top five websites visited by college kids have very little to do with education?

Below is a list of the popular college kids’ websites according to eMarketer.com.

These websites offer much more than chatting; they are lifestyle portals. The interactive nature of these websites attracts college kids. They spend most of the time searching for friends or people to share their views, photographs, videos, experience and to discover new interests. They are on the lookout for games, cheats, trends in fashion, electronic gadgets, puzzles, codes, free software, books, education, loans, bargains, scholarships, adventures, martial arts, travel, crafts, gifts, tattoos, fitness, dietary foods, and other modes of recreation and entertainment.

In a day, on an average, 53% of college kids visit educational websites in English and 41% visit the similar Brazilian site. Though, most colleges have cyber-café within the college premises, yet the quantitative allowances for Net surfing has increased by a whopping 87% across the world.

Networking on the Net

Social networking has soared nearly threefold since 2000 and is the fad of the day. MySpace.com, the most popular social networking website has over 53.6 million users. Networking on the Net is fast becoming a craze among the younger generation. Social networking is mostly used by the posh and middle class youth as they are comfortable interacting on these sites and like connecting and communicating with like-minded people across the globe.

Social networking websites like, MySpace.com offer information on books, games, horoscopes, different chat rooms, blogs, music videos, schools, movies, new jobs, comedies, filmmakers and several other classified fields. Online networking and informal learning have become an important part of college kids. MySpace.com represented just 1% of all Internet visits in July 2004 but by July 2006 it has moved up to 4.5% of all US Internet visits.

Why college kids?

According to the Pew Internet and American Life Project 87% of 17 to 24 year-olds use the Internet. College kids spend more time on the Internet than Television or Radio and 34% spend ten hours or more on the Internet every week. 15 million University students use the Internet daily. One-third of them have credit cards and 48.5% are influenced by friends’ recommendations. Internet is their media of choice for information, communication, and entertainment.

eMarketer Inc. expects spending on social networking websites in the U.S. to more than double to $865 million in 2007 from $350 million in 2006. For marketers, social networking is a direct way of connecting with the young generation. Advertisement on these websites will improve a brand’s visibility and loyalty among the college kids and subsequently increase the ROI on advertising expenses.

College kids are early adaptors and are among the top online shoppers, which make them a good target for marketers. They are “the influentials” and are important to marketers as they aid word-of-mouth advertising. Marketers covet the brand loyalty of the college kids as they are potential consumers and have a long consumer life ahead of them. Marketers need to be creative with the design and content of their media plans as the college kids are experienced and demanding.

Business model

Advertisements, subscriptions from online chat sessions, censorship and membership fees and payment from other different sources like online books and horoscopes are the main sources of revenues for these websites. The major advertisers on MySpace.com, Facebook.com and Friendster.com are consumer companies like Coke, Apple Computers and Procter & Gamble. Analysts expect MySpace.com to generate $350 million in revenues in 2006 and Facebook.com to generate $50 million in revenues in 2006. The revenues are expected to go up 12 times by 2009.

These websites allow pinpointed advertisements. Advertisement rates vary from website to website. While one can advertise with a budget of $3,000 on MySpace.com, a minimum budget of $25,000 is required for advertising on YouTube.com. Minimum CPC and CPM for Orkut.com is $0.01 and $0.25. Facebook.com charges $5 for displaying Facebook Flyer 2,500 times. With 15 millions college kids online and spending forty minutes daily on the social networking sites, it is definitely the best opportunity for marketers to reach out to the younger generation.

The rapid growth of social networking has lead marketers to form long term partnership with the websites. Eyebrows were raised over the $900 million, 3+ year agreement between MySpace.com and Google.com. Facebook.com has also entered into a similar agreement with Microsoft. Facebook.com is creating special sections or groups for advertisers and it is providing much smaller spaces on each of the site’s main pages for advertisement. This strategy will aid Facebook.com in targeted advertising and thus add value to both the advertisers and the users. Out-of-the-box thinking and innovation is the key and constant improvising will lead the way, the most critical of these is Interactive Advertising that effectively engages the community in the brand or the product being advertised. An example: Coke could be running a Collectibles campaign that requires these college kids to drink out of coke cans, extract a number from the bottom of the can, enter it into a slot on MySpace, share the number with buddies, and compete for an award.

Competition

The space is very competitive, overfunded and MySpace.com, YouTube.com and Facebook.com are all fighting for similar advertising dollars and eyeballs. Several of the major websites are owned by large media houses. MySpace.com is owned by News Corp. YouTube.com and Orkut.com are owned by Google. Most of these companies are still in the developmental phase and have a high cash burn rate and thus the backing of strong finances is critical to sustain long term growth. Facebook, however, is still independent, and a closely watched acquisition candidate.

MySpace.com with 4.63% of the market share leads the rest by a huge margin. All major players in this space are constantly launching newer services to keep the traffic levels up and attract unique visitors. A great way to promote these sites and earn subscription revenues would be to create secret communities where only registered members can join and share their ideas. This community should remain inaccessible to the rest of the members and entry should be only by invitation from the other members of the secret community. In fact, this “secret society” concept can be used by marketers like Nike and Apple to engage the community in validating and researching new product concepts – effectively a tremendously cost-effective online focus group, that has the added advantage of generating word-of-mouth long before the product is launched. This would create anticipation and excitement, as a ready market awaits the launch. Steve Jobs has always been successful in creating this sort of excitement around much-anticipated products, and more recently, Microsoft was able to do so for the Xbox.

VC and M&A Activity

Takeovers are happening thick and fast and deals are being done to either acquire or advertise or to fund such websites. Both Facebook.com and Bebo.com have turned down acquisition offers from Yahoo! and British Telecom, respectively. These websites have been demanding a much higher price than what News Corp. paid for MySpace.com.

Venture Capital firms like Accel Partners, Meritech Capital Partners and Greylock Partners have invested a total of $25 million in Facebook.com. Pouring millions into websites used by college kids is becoming a phenomenon in itself. The revolution introduced by the social networking sites has companies clamoring to be part of it because of its rapid growth. Rupert Murdoch of News Corp has spent $1.3 billion on Web acquisitions so far including the much coveted July 2005, acquisition of MySpace.com.

Silicon Valley-based Venture Capital firms have poured millions of dollars into social networking sites and other Internet companies targeted at the college kids. Most of the financing is Start Up / Seed Financing or Early Stage Financing. Companies like Piczo, vMix Media, Snocap, Punch Entertainment, RazorGator, Renkoo, Podcast Ready, PicksPal, Micro Nets, Tribe, etc. have received VC funding at different stages of their growth. In fact, likely, in 2007, this market will crash due to the over-funding.

[Note: The Friendster number is its recapitalized financing amount, not the original.]

MySpace.com was acquired by News Corp. for $580 million in 2005. Google recently bought YouTube.com for $1.65 billion. New age media companies like News Corp., Yahoo!, Google and VCs like Accel Partners and Greylock are attracted by the 109% growth witnessed by this space in the past three years and are betting big as it is expected to continue growing at over 50% in the next three years.

Conclusion

The websites targeted at the college kids are trying to offer a variety of services to keep the eyeballs glued or else they might lose out to the next big fad. The key driver of growth for these sites has been the constant addition of new services. Facebook.com recently added Facebook Notes, which allows users to blog, and Facebook Developers that allows access to outside developers. Innovation is the key and to hold on to their traffic level the websites need to keep updating and providing newer more attractive offerings, better technology and interfaces.

Social Networking websites have shown a lot of promise and have attracted high traffic levels but they still have to deliver the numbers to impress the broader market. While some analysts are questioning the crazy valuations at which deals are being struck and are forecasting doom, others believe this segment to drive the future of the Internet. 2007 will provide some visibility into which of these sites make it to the required monetization levels to remain viable, and for sure, many (most) will go out of business.

Comments

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