Fifteen years ago, we could hardly gauge the benefits of professional/social networking platforms, though the Internet and e-mail already existed. People’s understanding and usage of technology and the Internet have evolved over the years. And although it looks like we have come a long way, the rate of development indicates that innovations in social networking are just getting started.
Present Scenario
Professional social networking is the order of the day, and nobody can defy its benefits any longer. We all know that the trend setters in this domain include LinkedIn Corporation (LNKD) and Facebook Inc. (FB). However, other companies like Ning are coming up fast and helping people socialize on the net.
Though online networking is at a nascent stage, these new players have realized the potential of this business and are coming up with innovative and customized solutions to grab a major share of the market.
"Netizens" have started understanding the dynamics of an online network, either professional or personal. Again, corporate and business houses are trying to make a foray into this business as they have realized that the end users are evolving every day and are increasingly adopting the social network sites.
Headhunters have been able to use the professional networking platform to look for suitable candidates for job openings. A case in point would be networking company XING’s new collaboration with a career website Kariyer.net. The companies will be using special software that automatically matches job postings published at Kariyer.net with XING members irrespective of the fact that job searchers may be active or passive in their approach. This is attracting HR professionals as they are getting a readymade database of candidates.
Growth Potential
According to the latest available data from the Internet research site eMarketer.com, as of December 2011, more than 1.2 billion people worldwide used social/professional networking sites with a frequency of at least 1 hit per month. eMarketer.com expects 1.5 billion Internet users by the end of 2012.
The research suggests that although the segment witnessed the highest growth of 23.0% in 2011, the growth rate may be expected to moderate over the next few years. However, the growth rate is estimated to remain in the double digits.
Growth in the Internet networking business is expected to come largely from Facebook’s expansion (although it is barred in China), which is expected to exceed the billion-user mark by the end of 2013. Facebook grew 44% in 2011, but the growth rate is projected to drop to 13.9% in 2014.
Among the different geographic regions, India is expected to take the lead in Internet networking, offering the fastest growth of 51.7%, followed by Indonesia with 51.6%, while China is expected to come third with a growth rate of 19.9%. China is trying to restrict their young population from accessing Internet networking due to certain cultural issues in the country.
Pitfalls
Apparently, the future looks promising for the Internet networking companies, but the end users have slowly started understanding the risks of maintaining an online public profile. One important drawback is that the demarcation between personal and the public information of a person is slowly reducing.
Personal information may get divulged in the public domain without the user’s knowledge. Thus, many users are deactivating their online profiles.
Security concerns and password theft in both personal and business networks are the other negative attributes. Although most of the sites claim to have adopted security measures to conceal user information, rampant cases of harassment, cyber-stalking, online scams and identity theft are being reported.
Moreover, these internet networking companies are mostly funded by advertisements on the sites, so their effectiveness in marketing these advertisements go a long way towards their success. This is specifically the case with Facebook.
Moreover competition is also heating up in this space. Local networking sites especially in china are likely to grow strongly and spread overseas. They are confident about their contents and about their appeal to the mass public. Moreover, companies like Google (GOOG) (with its Google+) is also increasing competition. This increasing competition will also affect the pioneers and may have an effect on their revenue generation ability.
China’s decision to ban Facebook is an ostensible sign of the government’s concern about the addictive nature of this medium. The Chinese also believe that youngsters should not be freely exposed to information since it could have a negative effect on the society and culture of the country. These government regulations affect the business potential of Internet networking companies.
To Sum Up
Although Internet penetration is expected to grow exponentially over the next 5 to 10 years, we believe that this may not be the case for social networking companies. End users gradually understand the pitfalls of this medium.
Although this has transformed the life of many in a positive way, there are others who feel differently. Therefore we think that investors would gain far more by investing in Travel booking sites like Expedia (EXPE) and Priceline.com (PCLN) both of which carry a Zacks Rank of #2 (Buy), but we have a Zacks #3 Rank for both LinkedIn and Facebook, which implies a short-term Hold rating.
EXPEDIA INC (EXPE): Free Stock Analysis Report
FACEBOOK INC-A (FB): Free Stock Analysis Report
GOOGLE INC-CL A (GOOG): Free Stock Analysis Report
LINKEDIN CORP-A (LNKD): Free Stock Analysis Report
PRICELINE.COM (PCLN): Free Stock Analysis Report
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