M01 mba research project raj sambwani may 2013 final

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My MBA research project on the sustainability of online advertising as a revenue stream for social networks

My MBA research project on the sustainability of online advertising as a revenue stream for social networks

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  • 1. Imperial College London Is Revenue from Online Advertising for Social Networks Sufficient to Justify Market Valuations? by Rajesh Sambwani A Project submitted in partial fulfillment of the requirements for the MBA degree May 2013
  • 2. I Synopsis Social networks like Facebook and LinkedIn have become public companies over the last few years, and are garnering strong public, consumer and industry interest both for their public image and their ubiquity. The IPO event for Facebook was a record breaking event for the $10B in cash raised for the company, and in October 2012, Facebook crossed the 1 billion user mark as a global social network. Powering these social networks revenue model is online advertising, responsible for the success of many businesses on the Internet, and consumers continuing to engage and consume the services these social networks provide. This research project explores the sustainability of Facebook‟s online advertising revenue model over the near term, and evaluates consumer engagement, marketing agencies‟ adoption of the social network as a medium to reach consumers as well as core revenue activities. Benchmarking against global competitors, where appropriate, was done to evaluate the potential revenue growth, and regional differences and market dynamics were also explored for opportunities for Facebook to exploit. The views of various industry experts were sought to gain insights into the industry and growth options for Facebook, and consumer views on their emotional connection and propensity to engage with online advertising were constructed. A map of the potential revenue opportunities helps to uncover online advertising as a core revenue stream, and requiring revenue stream diversification and aggressive growth to sustain Facebook‟s growth model over the next several years.
  • 3. II Acknowledgements Writing an acknowledgement is never an easy task, especially when there has been a nine month journey with incredible support from many. I dedicate this thesis to my wife, Jane, for her untiring support and patience through this journey; my parents, friends and Santi, my dog, who have always been there for me. I would like to thank Dr Marcel Cohen, my supervisor, for his invaluable guidance and constructive feedback throughout the course of the thesis. Thank you also to Ms Tatyana Protsenko, who has unselfishly ensured that the process of doing this thesis has been easy, removing roadblocks and obliging with help when necessary. I would have to show my deep appreciation to the long list of experts in the industry who have provided critical assessments of developments in the field throughout the interviews and contributed significantly to enriching the research process: JoostNienhius, Nelson Wee, Simon Piff, LuoChuan, SriramAdukoorie, Andrew Lazzaro, Audrey Kuah, JawazIllavia, RohitDadwal and Arthur Chang.
  • 4. III Contents Synopsis ............................................................................................................................................I Acknowledgements..........................................................................................................................II 1. Introduction .................................................................................................................................1 1.1 Online Social Networking Definition......................................................................................3 1.2 Aims and Objectives...............................................................................................................4 1.3 Terms of Reference................................................................................................................5 2. Discussion of Literature ...............................................................................................................6 2.1 Social Network Usage and User Growth................................................................................6 2.2 Media advertising spend and outlook ...................................................................................8 2.3 Global online advertising market.........................................................................................10 2.3.1 Definition ......................................................................................................................10 2.3.2 Interactive advertising market and Users outlook .......................................................10 2.4 Interactive advertising market - United States....................................................................11 2.5 Interactive advertising market - Japan ................................................................................12 2.6 Interactive advertising market - United Kingdom ...............................................................12 2.7 Interactive advertising market - China.................................................................................12 2.8 Consumer Response to Advertising.....................................................................................13 2.9 Valuing a Social Network Consumer....................................................................................13 2.10 Strategic Challenges and Thrust ........................................................................................13 3. Research Methodology..............................................................................................................17 3.1 Introduction .........................................................................................................................17 3.2 Conceptual framework ........................................................................................................18 3.3 The hypothesis.....................................................................................................................19 3.4 Methodology........................................................................................................................19 3.5 Research Design...................................................................................................................20 3.5.1 Consumer Online survey...............................................................................................20 3.5.2 Expert Interviews ..........................................................................................................21 3.5.3 Secondary research.......................................................................................................22 3.6 Summary..............................................................................................................................23 4. Analysis ......................................................................................................................................24 4.1 Approach to Analysis ...........................................................................................................24
  • 5. IV 4.2 Consumer View....................................................................................................................25 4.2.1 Emotional Connection...................................................................................................25 4.2.2 Tenure and usage pattern.............................................................................................26 4.2.3 Response to Online Advertising....................................................................................28 4.2.4 Conclusion - Consumer Audience .................................................................................29 4.3 Marketers.............................................................................................................................29 4.4 Value Chain ..........................................................................................................................30 4.5 SWOT ...................................................................................................................................31 4.6 Modelling the Revenue Opportunity...................................................................................33 4.6.1 Mobile Advertising........................................................................................................34 4.6.2 Online Advertising and Search......................................................................................37 4.6.3 Social Commerce and E Commerce ..............................................................................39 4.6.4 Emerging markets – China ............................................................................................40 4.6.5 B2B................................................................................................................................41 4.6.6 Platform Play.................................................................................................................42 4.6.7 Social Gaming................................................................................................................43 4.7 Conclusion - Summary of opportunity.................................................................................43 5. Conclusion and suggestions for future research .......................................................................47 5.1 Conclusion............................................................................................................................47 5.2 Limitations of the research..................................................................................................49 5.3 Future research recommendations .....................................................................................49 References .....................................................................................................................................51 Bibliography...................................................................................................................................59 APPENDIX A: Consumer Survey Questionaire...................................................................................i APPENDIX B: Interviewees List and Questionaire.......................................................................... vii
  • 6. 1 1. Introduction Facebook‟s IPO valuation at a record $104 billion in May 2012 drew particular attention to the online advertising revenue model for social networks and the sustainability in growth trajectory. Online advertising is the predominant revenue model for a large number of social networks, and while the global online advertising market has been growing at a CAGR of 11.4% between 2007 and 2012, stealing share away from other traditional forms of competition, there is still room to grow. Traditional marketers and agencies still continuously require convincing that any online site they spend money on provides the expected returnon investment. While audience engagement globally in social networks has grown rapidly, Facebook‟s share of the total online advertising market remains at 7.8% in the US, lagging behind the social network‟s penetration level of 14.1% of the global population, and 42.3% of the global online consumer population. Competition for online advertising dollars is also very high, with online portals like MSN and Yahoo competing on one hand for the online version of display advertising, and Google taking between 60 to 80% of market share for search advertising revenue, which makes up 46% of the total advertising market. So can Facebook continue to grow with online advertising as their main and dominant revenue stream, accounting for 80% of the total revenue? The momentum for these social networks continues, and one cannot miss the daily media coverage with headlines like: “Facebook’s Plan to Destroy Television” (Jim Edwards, Dec 2012) “Report: Twitter hits half a billion tweets a day” (Daniel Terdiman, Oct 26, 2012) “LinkedIn smashes Q3 earnings estimates” (Paul Sloan, Nov 1 2012) The main driver supporting the growth of the online advertising model for social networks is continued consumer engagement and interest, and as Facebook crossed the 1 Billion user mark in October 2012, and LinkedIn reached the 200 million user mark in January 2013, the question becomes whether it is possible for these social networks to continue to rely on the growth in the number of consumers and retaining engagement levelsto drive the online advertising revenue model.Recent reports also highlight the challenges
  • 7. 2 Facebook is facing with decreasing levels of engagement among the youth, which could be a worrying trend in the long term (BusinessWeek, April 2013). Several key drivers are identified (Nielsen Social Media Report 2012) as responsible for the growth of social networks and social media on a global basis: growth of mobile device usage both in developed and emerging markets, entrance of new social media sites and the growth of social TV and social care. Projections from eMarketeer indicate social networks users will continue at above 10% year-on-year rates and reach 1.85B users by 2014 (Fig 1.1). Fig 1.1 This paper is divided into the following five sections. The first section, Introduction, focuses on defining the online social network, outlining the aims and objectives and overall scope, summarizing the key research questions that the rest of the paper addresses and includes terms of reference. Section 2, Background, outlines the size of the consumer market, the online advertising market and the literature review for the topic, including the strategic challenges that Facebook and LinkedIn face. The research methodology and the hypothesis are outlined in Section 3, Research Methodology, which details the approach taken designing and conducting the primary and secondary research. The full analysis of the consumer research, the interviews and the
  • 8. 3 development of revenue models are then presented in Section 4, Analysis, followed by Section 5, Conclusions, where the conclusions, implications of the research and hypothesis and recommendations for future research topics are presented. 1.1 Online Social Networking Definition Social network sites have a long and interesting history with consumers over the last 16 years, as outlined in Boyd and Ellison‟s 2008 paper. The definition in the paperwill be used as the working definition of social network sites, described as “We define social network sites as web-based services that allow individuals to (1) construct a public or semi-public profile within a bounded system, (2) articulate a list of other users with whom they share a connection, and (3) view and travers their list of connections and those made by other within the system. The nature and nomenclature of these connections may vary from site to site.” The central concepts of creating an identity and connecting with a network of users are critical to the construct of the social network, in addition to all the activities that can be conducted depending on the nature of the social network. Many of the social networks in the paper, like Facebook, LinkedIn, Twitter and MySpace, are familiar names to most consumers, and some, like MySpace, have gone through metamorphosis over recent times, from an acquisition by News Corp to losing popularity with users as Facebook became the new dominant social networking environment. The social networking industry is dominated by both public, global companies, as well as dominant local players. Two widely used social networks, Facebook for consumers and LinkedIn for professionals, made their debut on the public markets in May 2012 and May 2011 respectively, and have been delivering positive business performance ever since, although widely documented strategic challenges around mobile monetization and revenue diversificationfor Facebook remain. In addition, Tencent and YY.com are public companies which dominate the Chinese social networking market, and Mixi was once a dominant social networking player in the Japanese market, recently being overtaken by Facebook. Both Twitter and Pinterest, with their unique consumer proposition around 140 character interactions and the posting and sharing of pictures, are relatively new to the social networking market andare also rumoured to be going public in 2013.
  • 9. 4 1.2 Aims and Objectives The major focus in this paper is on understanding Facebook from three perspectives: the engagement pattern and levels with consumers, the marketer selling online advertising solutions and the focus on diversifying revenue streams, with the goal of creating a point of view about the impact of all three perspectives on the revenue growth projections of a large online social network. There are references and comparatives conducted with LinkedIn (while fully acknowledging the different consumer and professional user audiences), as well as regional social networking sites that are making an impact on a global level, like Chinese site Tencent. Google, a leader in online advertising, is used as a proxy where appropriate to further understand the potential that Facebook can achieve if it is possible to break into the search advertising market. Is Facebook‟s online advertising model likely to keep its momentum now that it is a public company? This paper will attempt to refute the commonly held belief that online advertising alone is insufficient to sustain the growth of online social networks, in particular for Facebook. This is done by focusing the research and analysis on answering the following questions: 1. What is the consumer attitude and level of engagement with social networks, and how do consumers respond to online advertising on social networks? 2. What is the current state of monetization through online advertising on social networks? 3. What is the perception of marketers and advertisers of the effectiveness of the online advertising solutions provided on social networks? 4. What possible scenarios exist for top line growth for online social networks, and can the advertising model support the growth to justify market valuations? Market valuation is not addressed directly in this paper to restrict the scope, and demonstrating revenue momentum as an end results is defined as the proxy for determining the valuation of social networks. The research study was done with a global scope, and viewsof the market opportunity and competitive activity of regional players were further researched and analysed to understand the impact of possible market entry and growth strategies into these regions for Facebook.
  • 10. 5 1.3 Terms of Reference Online advertising is used interchangeably with Internet advertising and interactive advertising. Online advertising is the “use of Internet as an advertising medium where promotional messages appear on a computer screen” (Business Dictionary). Banner ads, display ads, rich media, sponsorships and email marketing are examples of various types of online advertising formats that are used by marketing professionals to distribute their marketing messages to computer screens and websites, depending on the marketing objectives. Click through rate (CTR)measures the overall effectiveness of an online advertising format (like banner ads) by measuring the “percentage of a website‟s users (or visitors) who click on an (online) advertisement (like banner ads) to go to the advertiser‟s site”. (Business Dictionary) Contextual (or contextual advertising)refers to online advertising targeted specifically to a particular user based on the actions that are being taken. (Larry Kim) Cost-per-click (CPC)is used interchangeably with pay-per-click, and refers to a form of online advertising where a buyer only pays for the “clicks”, or the number of times a user on the Internet interacts with the buyer‟s advertisement. Mobile advertising is online advertising that is delivered to mobile devices, and formats may vary to suit the specific nature of the small mobile device screen. Mobile advertising is called out as a separate category for this paper because of the growing importance of mobile usage, and to understand its standalone impact on overall revenue. Instagram is a service provided by Facebook that allows a user to take pictures using the mobile device and to share them on social networking sites. AdMob is part of Google and provides the ability for owners of mobile applications to make money by incorporating mobile advertising within their mobile applications. Social TVis the “union of television and social media” interaction (What is Social Television?) – the ability to use social media and related technologies to interact with other television viewers in the midst of watching television.
  • 11. 6 2. Discussion of Literature This section focuses first on understanding the social network user growth pattern, which is a critical driver for the social network business model. The discussion then looks into one of the revenue drivers for these social networking sites: advertising, looking at both the total global media advertising market as well as the online advertising market. A review of the dynamics of online advertising in key markets, as well as the competitive dynamics both locally as well as globally is then outlined, clearly identifying and defining the key players in the social networking industry. Finally, some of the information shared during the filing of the IPO papers for both Facebook and LinkedIn is reviewed for information on both their views on the online advertising model as well as the challenges faced by these social networks. No global academic study correlating consumer engagement with online advertising and lifetime value of the user for social networks was discovered, and would be relevant for future research. 2.1 Social Network Usage and User Growth Strong growth and engagement with social networks among consumers has been a global trend over the last 5 years, both with the rapid growth of Facebook as a global player, LinkedIn as a trusted professional networking tool and several local Chinese and Japanese sites who have started globalization efforts. Usage of more than one network to interact with friends is also not surprising as the major social networking sites reach more than 30% of consumers and report growing their user base into hundreds of millions of users. (eMarketeer) Mary Meeker‟sInternet Trends presentation in December 2012 highlight some key Internet and mobile global usage and growth trends among consumers that are worth noting, as both of these are key drivers for the usage of social networks: Internet Users: The global Internet user base is now at 2.4 billion Internet users, with an 8% year-on-year growth and with global penetration at 34%. Mobile Device Users: Mobile device usage, while having reached a total number of 5 billion users, has been shifting from simple mobile devices to smartphones, and globally the number of smartphone users has reached 1.1 billion, with a 42% year-on-year growth and global penetration level at 17%.
  • 12. 7 Internet Traffic: 13% of the traffic on the Internet is now coming from a mobile device, versus the PC. With mobile usage expected to grow rapidly, this trend of Internet traffic increasingly coming from a mobile device is set to continue. Mobile and Internet Advertising: There is a big gap, and hence upside potential, between the level of mobile and Internet usage and the corresponding percentage of share of mobile and online advertising spend, representing a $20B opportunity just for the US, as Fig 2.1 illustrates. Fig 2.1 (Source: Mary Meeker) According to Piper Jaffray‟s “Taking Stock with Teens” survey in April 2013, Facebook continues to decline in popularity among the teens, a trend seen in the last 12 months (Fig 2.2). Since the teen segment is a crucial segment for advertisers, and as social media becomes critical to influencing preference for products and buying behaviours among the teens, this is a trend Facebook needs to monitor and respond to if necessary. At least for Facebook, the usage of Instagram for photo taking and sharing on mobile devices is increasing among the youth.
  • 13. 8 Fig 2.2 (Source: Piper Jaffray) No comprehensive global consumer studies of social networking usage was found, and while Edison Research does have a comprehensive 2000+ people telephone survey information for the US, there was also no corresponding correlations made to response to online advertising. Growth trends for social network usage are highest among emerging markets, while growth continues at a slower pace in developed markets. (eMarketeer) Attempts have also been made to model the true value of social network users based purely on company valuations in 2008 and 2009 (Michael Arrington), but no academic research was found that quantifies the value of social network users, either for the company or for marketers. 2.2 Media advertising spend and outlook The global media advertising market (eMarketeer, June 2011) continues to show year on year growth, and is projected to keep growing in the 4 to 5% range up to 2015, as the figure below (Fig 2.3) illustrates.
  • 14. 9 Fig 2.3 The shift from traditional media (TV, radio, print) to online continues at a strong pace across the major countries around the world. In the US, traditional ad spending has been decreasing since January 2012, and in February 2013 is expected to reduce by 2.7%. China is expected to surpass Japan as the number two media advertising market in the world in 2014, based on media spending, and just after the US (IAB, Oct 2011), with a CAGR of 14.6% (Fig 2.4). Fig 2.4
  • 15. 10 2.3 Global online advertising market 2.3.1 Definition Ratliff and Rubinfield‟s work in UC Berkeley on defining the online advertising market mentions that “there appears to be no consensus on precisely when advertising on the Internet began.”, and while they admit their work is inconclusive in defining the market, have at least given a direction to it. Demarcating the online advertising market between search advertising, dominated by Google with its Adwords service, and non-search advertising would be a natural way of defining the market. Differentiating between the online advertising “SKUs” is really a case of choosing the different types of “graphic format”, the approach to targeting and the “basis of payment” (Ratliff, Rubinfield). The online advertising formats continue to rapidly evolve and innovation is ripe in this media category, as changing consumer behavior on devices, privacy concerns and Internet consumption patterns forces the industry to evolve. More traditional industry sources like Interactive Advertising Bureau (IAB) and eMarketeer, help to further break down non-search categories into units that online marketers are familiar with buying and tracking, like banner/display ads, mobile, email, rich media, sponsorships and lead generation. 2.3.2 Interactive advertising market and Users outlook In 2010, the US had a 40% share of the total global interactive advertising market, with a market size of $ 26B, and projected to grow to $58B in 2017 (Digital TV Research). Data for the other key interactive advertising markets is in the table below (all in USD). Online advertising spending globally is expected to increase its proportion of the total advertising spend, with advertisers spending $80.2B globally, a growth of 17.2% from 2010 to 2011 (eMarketeer). Market Market size (2010) Market size (2017) US $ 26B $ 58B UK $ 11.7B China $ 2.6B $ 10.8B Mobile advertising growth rates, which are not included in the data above, are very healthy, growing by more than 100% from 2011 ($1.23B) to 2012 ($2.4B).
  • 16. 11 A breakdown of the internet advertising market performance for the largest markets (US, Japan, UK and China) is included in the following sections. 2.4 Interactive advertising market - United States The projections for the US are for digital ad spending to grow, with budgets totaling $42.5B in 2013 and increasing to $ 55.25B in 2016. (eMarketeer, September 2012) (Fig 2.5) Fig 2.5 The largest revenue segments are search followed by display ads (PwC Outlook). The $8B search segment and $3.6B display ads segment continues to grow at very strong rates (18.8% and 10.9% respectively). Both mobile and video ads are new categories starting from a comparatively small revenue base, with strong growth rates. In 2013, mobile advertising is expected to grow between 55 to 65%, reaching a market size of $ 7 Billion. For 2012, “Facebook ended the year on top, clearing $234 million on mobile display ads, followed close behind by Pandora at $229 million, the firm reports. Twitter came in at third place, selling $117 million worth of mobile display ads.” (IDC, Clickz) For social networks, online advertising revenues come from all advertising format categories, with the exception of the very lucrative and high growth search segment, which is dominated by Google, Yahoo and Microsoft.
  • 17. 12 2.5 Interactive advertising market - Japan Japan‟s homegrown social network, Mixi, started in 2004 to capture the social network opportunity, and has been a public company since September 2006 on the Japanese stock market with dominant market position among Japanese consumers for a long period of time. Facebook has, however, developed strong momentum over the last few years, growing from 2 M users in January 2011 to 15 M users by September 2012, overtaking Mixi‟s user base in the process (Jonathan Espinosa). Mixi, meanwhile, has seen a sharp decrease in their monthly active users (MAUs) with changes in local laws and competition from local mobile gaming players like GREE and DeNA (DrSerkan Toto). Mixi‟s quarterly advertising revenue was US$ 13.3M (JPY 1269 M) (Dentsu) which can be used as a proxy for the potential advertising revenue Facebook can achieve. In 2011, 10.8% of the total advertising and media spend in Japan was on the internet, accounting for $6.07B (JPY 616.637 B). (Dentsu) 2.6 Interactive advertising market - United Kingdom Facebook revenue estimates in the UK are at £180M in 2011, with projections at £288M for 2012 of a total online advertising market projected to cross £5B(Mark Sweney).Mobile advertising grew by 157% to £203M in 2011. 58% of the total online advertising spend is attributed to search at £2.77B, with display advertising achieving £1.13B. It must be noted that the UK is the most advanced online advertising market, with 28% of the total advertising spend of £16.99B being spent online, and showing absolute growth at 16.8% in 2011 (IAB UK). 2.7 Interactive advertising market - China China has several homegrown social networks that have been very popular and growing at astounding rates. Tencent, a leader with a long history and a strong brand among local consumers, is a public company with recent valuations of $62B, and with an international service, WeChat, reaching more than 300M users globally (Christopher Mims, Quartz). 7.7% of Tencent‟s well-diversified revenue stream comes from online advertising, a total of $544.6M (RMB 3.382 B) (Tencent).
  • 18. 13 The November 2012 IPO of a new Chinese social network, YY.com, also continues to build momentum in the social networking industry. YY.com boasts 400M users and is a “leader in the "sticky" activity of group voice chat” (Ryan Tate). “…the typical user of its "YY Client" chat system spent 52 hours on the system in September, roughly nine times as much the typical American Facebook user spent on Facebook.” (Ryan Tate) Google China, in a well-known 2010 public event, stopped operations in China after refusing to censor its search results. One estimate in December 2011 from Forbes mentions that Google may still be making $640M from its China operations despite having left the country (Eric Jackson). Google‟s AdMob acquisition helped it to continue operations in August 2012, and they are now registering revenues from advertising on mobile phone apps. At the same time, even though Facebook is officially banned in China, consumers have found ways of accessing and using the service. As a result, Facebook has 611,000 users in China, as of September 2012. (Jon Russell) 2.8 Consumer Response to Advertising The consumer attitude towards the appearance of online advertising within social networks will be expected to constantly evolve and change.Today, 15% of US consumers share advertisements, 26% like these advertisements and up to 14% actually buy a product as a result of exposure to these advertisements. (Nielsen‟s Social Media 2012 Report) 2.9 Valuing a Social Network Consumer Determining the value of a „like‟ or a „fan‟ on your Fan Page in Facebook would be extremely valuable to marketers in understanding the value of their marketing investment in social networks. One study by Syncapse says a “Facebook fan is worth (an average of) $174 to a brand, up 28% since 2010 and the value varies depending on the exact nature of the brand. 2.10 Strategic Challenges and Thrust Eric Clemons defines the online advertising scenarios within social networks as a “complex problem of monetizing…”, outlining different scenarios for paid services and online advertising. Though it seems like the framework for monetization developed by Eric Clemons may have been supplanted with the revenue momentum that Facebook is
  • 19. 14 demonstrating currently, his belief that the real opportunities are still being discovered is likely to be valid as the evolution of online advertising in particular, and on social networks specifically, continues. Facebook “The dramatic decline in growth rates means that Facebook will need to radically grow its payments business to please future shareholders and continue to post strong annual revenue gains.” Jennifer van Grove, Feb 2012 This statement published in VentureBeat, created pre-IPO, paints some of the challenges Facebook faces in growing at a pace and scale that will satisfy the expectations of a public company. The payments business, bulk of which is a levy charged to games providers for leveraging the Facebook platform, is mainly a PC based business. As users move most of their usage to mobile devices, there have been questions raised on their payments business and their ability to monetize their traffic from users accessing Facebook through a mobile device. The acquisition of Instagram in September 2012 changed the dynamic and helps with their credibility somewhat, and the latest Q4 2012 earnings report had them reporting 23% of their advertising revenues from mobile (Facebook). From Mark Zuckerberg‟s Q4 2012 earnings call, “there are three main parts of our strategy. Building the best mobile product, build a platform and services that leverage the social graph, and build a really strong monetization effort – engine.”, the challenges with monetization and mobile are clearly highlighted. It is too early to tell if the acquisition of the Atlas Advertiser Suite platform from Microsoft in February 2013, an attempt to demonstrate better total returns on investment from any online marketing campaign, will make a significant impact to the overall online advertising spend from clients and create significant upside. Facebook has also clearly highlighted the following set of risks from its S-1 filing (JBat), which continue to hold true post-IPO in 2013: user retention and engagement, strong dependency on advertising revenue, mobile usage and monetization and competition, among others.
  • 20. 15 LinkedIn “We continue to add approximately 2 member sign-ups per second.” Jeff Weiner, CEO, Q4 2012 earnings call LinkedIn is focused on social networking for professionals and has a more diversified revenue base, consisting of online advertising (called “Marketing Solutions”), revenue from paid services from recruitment solutions and direct subscription revenue from users, with advertising constituting about one-third of the revenue. The focus on consumer solutions and monetization for mobile devices is very evident in their quarterly reports. As LinkedIn continues to grow rapidly past their 200M user base, and increases focus on their online advertising efforts, their online advertising revenue stream might be a good comparative for Facebook. Imminent IPO and Valuation of Twitter and Pinterest Both Twitter and Pinterest have been rumoured to file for IPOs in 2013. Twitter‟s rapid rise to 500 million users and projected $583 M revenue, with growth by 100% year on year (ShiraOvide), has made it a contender for advertising spend with agencies, as their relatively young user base are a lucrative target for marketers. Pinterest has grown to 10 M users within a very short time and is a contender for attention with users that is worth tracking in the medium term. Their engagement level with consumers is highest of the three social networking sites and may be interesting from Facebook and Twitter to learn from. “When it comes to time spent online in 2013 across social networks, it‟s quite astounding to note that Pinterest users spend over an hour on average which is almost unheard of. When compared with Twitter‟s 36 minutes and Facebook‟s 12 minutes, this is unusually high……..” (Job Stock) Google‟s Dominance Despite the dominance of local Asian social networking sites in China, Japan and Korea in their respective markets, 44% of the global online advertising revenue is attributed to Google (Miranda Miller), and its product superiority, default usage for many consumers and the strength of its business model continues to point to them keeping their market share. In the absence of a search offering, and with the barrier to entry extremely high to
  • 21. 16 creating a search offer for consumers, as evidenced by Microsoft‟s Bing search product being unable to gain significant ground in search against Google despite billions of dollars of investment, social networks, including Facebook, will only be participating and competing for the rest of the 56% of the online advertising revenue pie.
  • 22. 17 3. Research Methodology 3.1 Introduction This chapter describes the research methodology behind this study. A conceptual framework that will help with the research design and approach is first detailed, addressing the need to obtain industry, consumer and internal company perspectives on usage of the networks, the efficacy of the online advertising model and the impact of new commercial initiatives, beyond online advertising, on the medium and long term revenue model. The approach to conducting primary and secondary research, including the sample questionnaires and data collected, is then outlined in detail. The methodology is designed to achieve the aims of answering the following research questions: 1. What is the consumer attitude and level of engagement with social networks, and how do consumers respond to online advertising on social networks? 2. What is the current state of monetization through online advertising on social networks? 3. What is the perception of marketers and advertisers of the effectiveness of the online advertising solutions provided on social networks? 4. What possible scenarios exist for top line growth for online social networks, and can the advertising model support the growth to justify market valuations?
  • 23. 18 3.2 Conceptual framework Fig 3.1 The conceptual framework (Fig 3.1) shows the impact of several key “outside-in” and “inside-out” factors on the success of online social networks‟ online advertising revenue model, and has helped drive the design of the research. The key “outside-in” factors relate to engagement of key players in the online advertising ecosystem, both consumers who consume services, engage and interact with the social networks, and marketers, agencies and partners who sell and purchase online advertising, or build services and products on the social network platform. The “inside-out” factors relate to risks and challenges of being a public company and responding to market pressures, and the ability to keep the pace of innovationnecessary to keep consumers engaged and providing value to the players in the various parts of the value chain. At the same time, executing on the vision and talent retention is critical to success. Continued engagement by consumers with social networks is critical to the success of the business model and monetization. Hence, gaining a deeper view of the current perception of social networks and present and future usage patterns is crucial to understand the impact on the potential for continued growth. Areas that require further investigation relate to perceptions relating to how important social networks are to a consumer, tenure, comparative frequency of use and response to online advertising.
  • 24. 19 For marketing agencies and marketers, a more in depth understanding of their experiences with selling and leveraging marketing solutions incorporating online social networks was required. In particular, investigation into how important social networks were in the marketing mix, which ones are delivering on the requirements and are being recommended and a view of what is needed in the marketplace by customers was required. Perspectives and insights from experts on the areas of online advertising that are delivering results, and further investigation into new opportunities for differentiation and innovationand their impact on the revenue mix and the online advertising model, is also required to complete the understanding of the overall revenue landscape. 3.3 The hypothesis The main hypothesis for this paper is that the online advertising model alone can allow for continued growth and justify the market valuations of social networks, by harnessing continued consumer engagement and tapping into new revenue opportunities to accelerate further growth. 3.4 Methodology The research methodology (Fig 3.2) is based on a combination of: a. Online survey among consumers to understand the engagement level with social networks and response to online advertising, b. Interviews with industry practitioners to understand the specific challenges and opportunities faced by social networks, and c. Secondary research from a combination of academic and opinion sources to supplement insights gained from consumers and industry leaders.
  • 25. 20 Fig 3.2 3.5 Research Design 3.5.1 Consumer Online survey Geographical coverage The mass penetration of online social networks among consumers in almost all countries has made it a universal and often used tool. Differences across age groups and penetration and adoption of technology would directly impact social network adoption and would require further investigation. This research is, however, focused on learning from a random sample of consumers, without controlling for age groups or any other factors. The US – with its size of the population, the level of Facebook penetration as a global social network and technology adoption levels, together with the unique local social network and services in China, Korea and Japan – was focused on as a separate region for analysis from the rest of the world (ROW). The primary quantitative research with consumers was hence divided into two large geographic areas of focus: US and rest of world (ROW). Individual data for each sample group from each of the two geographic areas of focus was collected and analysed. Since the sampling of consumers across both the US and ROW research was randomly conducted, the results from both the research studies was then combined to create a global view of the research.
  • 26. 21 Questionnaire design The same sets of questions were posed to both the US and the ROW audience. The US audience was recruited from the Survey Monkey Audience tool for a random sample across the population. The ROW group was recruited via online emails and Facebook, specifically ensuring that the people who responded were non-US based but not controlling for any other factors. The sample size for this research paper was determined predominantly by the budget and timing constraints for the project, and a larger sample size may impact the results and may be valuable to explore for a future research project. The questionnaire was designed to include all the popular social networks that consumers are aware of (Facebook, Twitter, LinkedIn, Pinterest, Google+), getting users to pick their favorite or most popular network and to answer additional questions on the most used network. A combination of emotional responses as well as usage and activity responses were collected, based on a set of 16 questions consisting of single answer choice among several options, several answer choices and questions for which open- ended questions were allowed. The survey questions were designed by the author and were in the following categories: Engagement with social networks: How critical social networks were to their lives, compared to usage a year ago Online advertising: Engagement with online advertising Usage: Frequency and depth of usage of the various social network sites In total, a sample of 61 US respondents and 67 ROW respondents participated in the online survey conducted via the online Survey Monkey tool over a period of 6 weeks. A copy of the questions used in the online survey is attached in Appendix A. 3.5.2 Expert Interviews To investigate the external factors that impact marketing agencies and marketers‟ choices of social networking tools, and the internal factors that affect the social networks‟ ability to differentiate and innovate, ten high-profile industry practitioners were chosen for one-on-one in-depth interviews, lasting for about an hour and conducted face-to-face or on the phoneover a period of 4 months. These industry practitioners were profiled based on the contacts in the author‟s network and on their ability to provide an opinion on
  • 27. 22 online advertising efficacy with advertisers, social networks monetization efforts as well as opportunities for diversification into new revenue streams and business opportunities. The 10 industry leaders range from head of marketing agencies, marketing professionals in various roles working directly with advertisers, veterans in the online advertising industry and small business owners, and were also chosen to represent several geographies. A copy of the questionnaire used as a guide during the interviews and a list of the interviewees are attached in Appendix B, and a copy of the transcripts from the interviews are available on the CD-ROM. 3.5.3 Secondary research A wide range of academic and opinion sources were explored to substantiate the collection of data and insight from the quantitative and qualitative research, ranging from books to online analyst and research reports. The primary goal was to: Understand the dynamics and sizing of the online advertising market from sources like eMarketeer and the Interactive Advertising Bureau (IAB), Gain insights into consumer usage of technology from Search Engine Watch and IDC, Get industry viewpoints, opinions and news from online technology sites like Techcrunch, The Next Web and Mashable, and Financial Reports from the Investor Relations sites A key learning from the secondary research is how widely the projections for the online advertising market vary, and how new formats and approaches have been rapidly introduced in the last 5 years, since the online advertising segment is one of the fastest growing segments of the total advertising spend globally. There are also lines being blurred between the various categories of online advertising. As an example, search advertising is now making display advertising much more relevant as a result of key players and partnerships entering the market, Chango‟s deal with Facebook in late 2012 being one example.
  • 28. 23 3.6 Summary Using a combination of quantitative research to better understand the consumer of social network services, and qualitative research from interview industry leaders, provided a rich set of data points to start analyzing how the virtuous cycle of consumer engagement and marketers adoption can impact the online advertising business model. New areas that could be explored as additional revenue sources were discovered and will surface during the data analysis in the next chapter.
  • 29. 24 4. Analysis 4.1 Approach to Analysis Fig 4.1 The approach to the analysis is outlined in Fig 4.1. Consumer survey results from the US and ROW surveys are analysed for insights into emotional connection with social networks, tenure and usage and interaction with advertising. A global view, aggregated from the US and ROW data, is then created and analysed, and cross-tabulations were done for specific areas to understand if there were additional useful correlations. To create a map of the potential revenue opportunities, a SWOT analysis to understand the internal capabilities that can be leveraged, and a value chain analysis to uncover untapped opportunities, was conducted. Insights from the interviews were then combined with the analysis to create a map of revenue opportunities, which have been modeled for three years using a combination of publicly available market and competitive data.
  • 30. 25 4.2 Consumer View One of the 3 key pillars of the conceptual framework created earlier is consumer engagement, and one that is fundamental to Facebook‟s momentum and revenue model. The quantitative research with consumers in both the US and ROW provides responses which gauge the emotional connection as well as variations in response related to tenure with the social networks. Another key external viewpoint that is critical to the success of Facebook is the experience marketers have with the marketing solutions that Facebook provides. The third perspective in the external view is the value chain that Facebook operates in, that impacts the control and the influence it has over its activities. The consumer and marketer perspectives, as well as the value chain, are analysed in this section. The consumer research was focused on gaining an understanding of the usage pattern and emotional connection to social networks compared to a year ago and response to advertising that they experience on these social networks. Two levels of analysis were conducted based on the data collected: 1. A side by side comparison of the aggregated responses on all questions from 61 respondents from the US, an advanced market for Internet consumer behavior, and 67 ROW respondents; and 2. A combined global viewpoint of the 128 respondents. A copy of the consolidated consumer research results (for the US, ROW and consolidated Global results) is available in Excel on the CD-ROM (Market Research Summary Global Online Survey). 4.2.1 Emotional Connection Response to Question 2: To what extent do you agree/disagree with the statement: Online social networks are an important part of my life. Both US and ROW respondents feel a strong emotional connection to social networks, with 65.5% of US respondents and 78% of ROW respondents agreeing or strongly agreeing with this statement.
  • 31. 26 US ROW Disagree/Strongly Disagree 32.9% 20% Agree/Strongly Agree 65.5% 78% Response to Question 14: “If my favourite social network disappeared, I would not be bothered.” There is a strong bond between consumers and their ”favourite” or most used social networks, as evidenced by 56% of US respondents disagreeing or strongly disagreeing with the statement, and 60% of ROW respondents. Response to Question 15: “What would you do if they disappeared?” Most people will move to their social activity to another site where their friends are (49% ROW, 42% US) while also potentially moving to the next big thing that will come up (17% US, 26% ROW). 68% of US and 74% of ROW respondents do not believe that social networking is a passing fad. 4.2.2 Tenure and usage pattern Response to Question 3: “Which social networks do you currently have an account with?” Facebook and Twitter are highly used both in the US and ROW, garnering 95% and 40%+ responses. For Pinterest, the usage is much higher in the US compared to the ROW, almost double in usage. LinkedIn, on the other hand, has almost double the number of respondents in ROW compared to the US. Response to Question 4: “When did you join these social networks?” Twitter users in ROW have a longer tenure (2 or more years) compared to the US (almost double in percentage terms). A similar trend applies on LinkedIn, where the difference is much more pronounced for those respondents with >2 years with the service (almost triple in percentage terms). 30% of Google+ users in ROW are recent joiners, having only started using the service in the last six months.
  • 32. 27 Response to Question 5:“Are you using it more often, less often or the same, compared to a year ago?” Engagement levels have increased for Facebook for ROW users (63% using more often), whereas in the US, equal numbers are using Facebook more often or at the same rate as a year ago. Twitter and Pinterest seem to be losing engagement with consumers in ROW (58% using Twitter less than a year ago, 43% for Pinterest). US users mainly using LinkedIn at the same level as a year ago, while proportionately, LinkedIn has increased engagement with ROW users (29% use more often). Response to Question 6: “Which social network do you use most often?” There was an overwhelming response to Facebook (85%+) as the social network that is used most often, across both the US and ROW. Twitter also has a reasonable number of users using the social network in the US, whereas both LinkedIn and Google+ came in second in terms of responses for ROW. Response to Question 7: “How often do you use your most frequently used social networking site”? There were similar usage trends across both US and ROW, with more than 68% using their frequently used site at least once a day and more than 21% using it several times a week. Response to Question 8 on what do you do most often: Usage patterns are similar in both the US and ROW, with the top activities being browsing and posting “like” and comments, followed by chatting with friends and playing games. Response to Question 9 on ranking what you like most and least about activities: There are some slight differences in the response to the favourite things to do on the most frequently used social networking site (as seen in the table below). US respondents use these networks more for social connections with friends and brands; while using the channel as a form of expression, ROW users also tend to use this channel as a way of keeping updated with news and discovering new things.
  • 33. 28 Answer Options US ROW Keeps me connected to people 1 1 Allows me to interact with my favourite brands 2 3 Allows me to voice my opinion 3 4 Keeps me updated on the latest news 5 2 Allows me to discover new things 4 3 Allows me to make new connections 6 5 4.2.3 Response to Online Advertising Response to Question 10: “To what extent do you dislike the following?” and Question 11: “Have you noticed any advertising on the site?” and Question 12: “Have you clicked on any of these advertisements?” More than 80% have seen the advertising on the sites across both the US and ROW, and about 28% have clicked on these advertisements. US and ROW respondents dislike the fact that there are too many ads on the site, an ongoing concern for services which are advertising-supported. There are also some pain points around the mobile site and the fact the site is slow. Response to Question 13: “Why do you not use the other social networking sites?” US respondents believed there was no value to them from these other social networks (68%), and some do not use others because their friends don't use it (38%). Some US respondents provided other reasons for not using other social networking sites: Lack of time “I have at most 30 minutes a day” Unfamiliarity Use most of social networks simultaneously Inferior Running my business for free For the ROW, the main reasons were spread evenly across the lack of personal value, their friends were not using it and to the fact that the other sites do not make them feel as connected.
  • 34. 29 Several ROW respondents provided alternative points of view for not using other social networking sites: Perception of Twitter – “Can‟t spend too much time “tweeting” about nothing” Practical: accustomed to one, busy, no need to manage too many personas Too many options 4.2.4 Conclusion - Consumer Audience Those responses that garnered more than 60%aggregated scores were considered strongly directional. Based on those criteria, engagement levels have increased with consumers compared to a year ago, and agree that social networks are an important part of their life. Consumers also do not believe that social networks are a passing fad, and will be a part of their lives. A summary of the responses from the global data is shown below. 4.3 Marketers Some concerns raised by marketers and those representing marketing agencies related to: a. Ensuring that advertising remained non-intrusive, with the example of Facebook publishing advertising within the news feed. While the data from Facebook seems to indicate that usage has not dropped since the introduction of the new ad format within news feed, marketers still felt it was intrusive, b. Complexity of the buying process for marketers with new ad formats being constantly introduced, Emotional Connection 2 Important part of my life 72.3% 14 Would bother if disappeared 58.4% 15 What would you do if disappeared? 45.6% Go to where my friends are T enure and Usage 4 Tenure (>2 years) 74.4% 5 Frequency of use - increased 52.4% Frequency the same 34.1% 7 At least once a day 70.6% Interaction with Advertising 12 Clicked on Ads? 28.0%
  • 35. 30 c. ROI on social media investments: Marketers cited the example of creating content pages on Facebook, but not being able to capture user information to create a user database from the “Likes” that are obtained, plus the additional investment needed to keep content updated to get user engagement, and d. There is also the concern about the hype among marketers using social media (BRW article, Mark Kitson). 50% of the coverage in marketing media centred around social Media in Australia, while actual spends were closer to only 5% of total spend. There are quite a number of other opportunities that are being missed by marketerswhile being distracted by social media. “Young people are starting to leave Facebook. Facebook, despite all the messages about the young ones leaving and being bored with it, still has >1 Billion users, which is a big population on any account.” Nelson Wee Facebook‟s sheer size of the user base does give it credibility to at least get spending from marketers for experimentation and learning. 4.4 Value Chain Fig 4.2
  • 36. 31 Facebook thrives on innovation. The hacker engineering culture prevalent in high technology Silicon Valley companies is core to Facebook‟s “Move fast and break things” culture (David Kushner), and is central to how Facebook develops products. There are three key parts to the product: development of the core Facebook service, the open platform that third parties leverage to build their services and the users generating their posts and likes (user-generated content) that adds to enrich the Facebook service. All the components of production related to the product as well as the advertising and monetization platform drive the revenue model. Marketing and sales is done both by word-of-mouth owing to the strength of its brands and also the agencies who deliver campaigns on behalf of their clients. Distribution of Facebook is via several channels: the website, the mobile application, by partners redistributing Facebook content and also through individual Facebook properties being distributed (as an example, the Instagram mobile photo-sharing application). From this analysis, opportunities do exist to open up to third parties to build and enrich the platform, although monetization potential is unclear. 4.5 SWOT The SWOT analysis below is done with the distinct need to uncover qualitative views that may impact Facebook‟s ability to further build the revenue model. Strengths: Facebook has a large user base (more than 1 Billion users) that is actively engaged with the network. Facebook‟s brand strength and recognition is high, among consumers and within the industry. Facebook financial position is strong – both with cash ($ 9.626B cash and short term investments in 2012) and quarterly operating margins (generating $1B in net income in 2011 and $53M in 2012, even while being in investment mode) The culture of innovation (called the “hacking culture”) is very strong and unique, and widely acknowledged as crucial to its success, along with the talent pool and
  • 37. 32 management bench. In addition, several acquisitions for talent (Teresa Novellino) have been made which have helped the company. The profile of key executives within the company (Mark Zuckerberg as youngest CEO in the Fortune 500 and Sheryl Sandberg, COO) is very high in the industry and it is critical to their PR and image management for the company. Continued momentum in online advertising with agencies and marketers is helping Facebook to show good quarterly results. Industry partnerships, in particular with Microsoft, have helped to bolster both the technology and the innovation potential in the organization. Weaknesses: The non-diversified revenue model focused mainly on online advertising could be a high risk area and one that requires focus. High levels of innovation are expected from Facebook to keep consumers engaged and marketers keen to keep investing in Facebook. As a public company, the expected growth trajectory is very high, which raises added pressure on the organization and employees. Opportunities: Facebook has a reputation for being an innovative company and this should be harnessed for industry partnerships and in all marketing efforts. Monetisation opportunities around more targeted and contextual advertising efforts, plus mobile traffic, are lucrative for Facebook to capitalize on. Search, and search-related advertising offers, is an area largely unexplored by Facebook. Since it is a very lucrative segment and once largely dominated by Google, and with typical advertising spends having 50% spend on search related advertising, this is an area worth exploring. Emerging markets growth, including China where Facebook is largely non- present, would be valuable to tap into. In the high growth, high technology area that Facebook plays in, acquisitions are potentially leveraged as a way to acquire talent or technology that can support internal efforts.
  • 38. 33 Threats: Keeping talent who has become rich from the Facebook IPO will affect the operations of a fast growth company like Facebook. Consumer privacy continues to be a concern as consumers gain in awareness. Reducing youth engagement is an area that must be watched carefully as this audience is valuable for the marketing community. There is a delicate balance in the online advertising ecosystem where partners can quickly become competitors. As an example, Microsoft is a strategic partner and investor in Facebook, but also builds many sub-products and services (like MSN.com) that can potentially compete with Facebook. The public company pressures coupled with the long term investment needs that Facebook is a very delicate balancing act that can easily threaten the company if quarterly results do not match expectations. 4.6 Modelling the Revenue Opportunity From the SWOT and value chain analysis as well as the interviews with industry experts, the following opportunities for Facebook to grow revenue were identified: Consumer Focused: Advertising: o Mobile advertising , including Instagram o Online Advertising, including video Ads o “Search” Commerce: o Social Commerce o E Commerce o Pay-for services User growth, including emerging markets Business and Partner focused: o B2B o Platform for third parties o Acquisitions
  • 39. 34 The sections below start the scenario planning process for multi-year revenue potential in each of these categories, and a combined section at the end summarises the possibilities for Facebook over the next several years. Most of the opportunities are modeled over the next 3 years using comparatives, and assumptions about Facebook‟s ability to capture the opportunity. In most of these cases, the assumption is that the cost structure, and hence margins, are maintained and revenue multiples can be used as a proxy for value in the marketplace. A copy of all the models built for this analysis is available in Excel (Models for Analysis and Facebook Ratios) on the CD-ROM, and summaries of the models are attached in the following sections. 4.6.1 Mobile Advertising The monetization opportunity for mobile services is broken down into several categories: mobile advertising (both display and search), in-app (both advertising and downloads) and mobile games. Several mobile advertising networks (like AdMob) have been in operation for a while, but with Facebook‟s dominant usage and engagement for mobile (“comScore put out a report saying that Facebook is now 23% of all time spent on apps in the U.S. And one of the next biggest apps is Instagram at 3%.” Mark Zuckerberg, Q4 2012 earnings call) and the high mobile advertising traffic levels, the opportunity is largely nascent and a real opportunity exists for Facebook to capture significant revenue. A few key trends drive the value capture opportunities for Facebook: Size of the market in each of the categories – mobile advertising is the fastest growing segment US Market ($B) 2010 2011 2012 2013 Total Mobile Ads 4.5 7 Mobile – Display 1.7 - Facebook 0.234 - Pandora 0.229 - Twitter 0.117 Mobile – Search 0.7 1.6 2.8 - Google 2.166 Source: IDC, Clickz.com
  • 40. 35 Trends of mobile display advertising moving from mobile advertising networks (like AdMob) directly to niche sites like Facebook (IDC, April 2013) Mobile advertising publishing standards are still being developed and there is a real opportunity for innovation An opportunity in emerging markets to lead with the mobile being the first experience on the Internet for a lot of users and where growth and usage of data services continues Strong growth in the use of Instagram on mobile devices for Facebook The key challenges, surfaced from the interviews, continue to revolve around advertising innovation to fit a very small screen, advertising effectiveness and ROI for advertisers, growing into the emerging markets who are experiencing tremendous growth and the relative size of the mobile advertising market compared to overall online advertising, although this is changing rapidly. Scenarios Summary: Base Case - Facebook revenue Facebook retains mobile display market share In-app advertising revenue Growth 2012 2013 2014 2015 2016 Mobile Display 488.0$ 571.0$ 676.5$ 913.3$ 1,228.0$ In-app 14.4$ 20.7$ 29.7$ 42.6$ 61.3$ Total 502.4$ 591.7$ 706.2$ 955.9$ 1,289.3$ % Mobile Display 97.1% 96.5% 95.8% 95.5% 95.2% % In-app 2.9% 3.5% 4.2% 4.5% 4.8% Optimistic Case Facebook grows mobile display market share at 0.5% per year Revenue shift increases to mobile to correspond to time spent 2012 2013 2014 2015 2016 Additional Mobile Display -$ 57.1$ 135.3$ 274.0$ 491.2$ Revenue shift - time spent 80.0$ 160.0$ 240.0$ 320.0$ 400.0$ Total - Additional Mobile Display 80.0$ 217.1$ 375.3$ 594.0$ 891.2$ Total Mobile Display 582.4$ 808.8$ 1,081.5$ 1,549.9$ 2,180.5$ % Total Mobile Display - new 97.5% 97.4% 97.3% 97.3% 97.2% % Total In-App 2.5% 2.6% 2.7% 2.7% 2.8%
  • 41. 36 Detailed model: Mobile advertising - US (source: IDC) Millions 2010 2011 2012 2013 Mobile advertising - US (source: IDC) 4,500$ 7,000$ Mobile display ads 1,700$ Mobile search ads 700$ 1,600$ 2,800$ Mobile display - Facebook 234$ % of display market 14% % of overall market 5% Mobile search - Google 2,166$ % of search market 77% % of overall market 48% Mobile advertising - WW (source: Gartner) Millions 2012 2013 2014 2015** 2016 North America $ 3,182 $ 3,826 $ 4,695 $ 8,866 Western Europe $ 1,601 $ 1,941 $ 2,368 $ 4,445 Asia/Pacific and Japan $ 4,333 $ 4,865 $ 5,507 $ 9,480 Rest of the World $ 644 $ 788 $ 961 $ 1,768 Total $ 9,759 $ 11,420 $ 13,530 18,266$ $ 24,560 Growth 17% 18% 35% 82% Using share information from IDC as proxy: 2012 2013 2014 2015 2016 A Facebook retains share of overall market (5%) 488$ 571$ 677$ 913$ 1,228$ Google retains share of overall market (48%) 4,684$ 5,482$ 6,494$ 8,767$ 11,789$ Assumption:Mobile advertising is a separate category outside the traditional online advertising categories In-app Advertising ('000s) 2011 2012 2013** 2014** 2015 B Market size (source: Juniper, Whitepaper) 970$ 2,400$ 3,444$ 4,942$ 7,100$ Growth 147% 44% 44% 44% ** 2013 and 2014 data are straightline projections from 2012 data Assume 2016 projection is the same growth at (1.44*7100) = $10,224 CTR for Social and IM (source: Hillel Fuld, inneractive) 0.60% Potential revenue 5.8$ 14.4$ 20.7$ 29.7$ 42.6$ Assume 2016 revenue is (0.006*10,224) = $ 61.34 C Revenue from additional shift of dollars closer to time spent Assumptions - Mary Meeker - 2011 data (Dec 2012 report) 10% of time spent in media is in mobile; 1% is monetised Every 1% is worth an additional $1.6B Assume 1% additional per year shift of media spend closer to time spent 2012 2013 2014 2015 2016 Market size 11,359.10 13,020.00 15,130.00 19,865.50 26,160.10 Assuming Facebook retains its 5% market share, Additional revenue from shift 80$ 160$ 240$ 320$ 400$ D If Facebook grows share of mobile display market by 0.5% per year 2012 2013 2014 2015 2016 Facebook revenue share 5% 5.5% 6.0% 6.5% 7.0% Facebook revenue 488$ 628$ 812$ 1,187$ 1,719$ Mobile Games - Google's payments business - has not been modelled. Assumption is this is replaced by other revenue streams, like in-app advertising, over time. ** 2015 data is a straight line projection from 2014 data.
  • 42. 37 Two scenarios were developed for the mobile revenue streams, as seen above. In both scenarios, it was assumed that the in-app advertising opportunity remained the same at a low 0.60% click through rate (which was used as a proxy for Facebook‟s market share with Apple, Google and Amazon as strong competitors), in line with current estimates for social online advertising click through rates. For the optimistic case, in additional to Facebook‟s market share growing per year, an accelerated revenue shift to mobile spending to close the gap with time spent was modeled. In both cases, mobile display revenue dominates the total mobile revenue opportunity. 4.6.2 Online Advertising and Search “So even if they (Facebook) get double the number of people to click on their ads, and if they can double the amount of money they can get for each click now, that’s four times more venue than they can get now, right, which is significantly large.” SriramAdukoorie The opportunities for online advertising are centered around improving the relevancy and contextual nature of online advertising to improve targeting and hence be able to charge higher rates (cost per click or CPC), while at the same time building new revenues around innovations like video advertising. Facebook already captures a very significant portion of all the advertising impressions on the Internet – about one third. While Facebook does not have a search product, the partnership with Chango will start a search revenue stream for Facebook and is critical to “enhance its own core search functionality and advertising”.(Zach Rodgers, Jim Edwards). Yet, challenges among marketers adopting online advertising and social media remain: On the conversation with the CMO of Johnson & Johnson about using social media and social networks: “We’re kind of all in the same position trying to figure stuff out, and you only hear the success stories.” JawazIllavia
  • 43. 38 Scenarios: Maintaining market share, growing market share at 1% per year and the impact of the Chango deal on a new “search” revenue stream were the scenarios developed. The online advertising revenue opportunity is the largest opportunity and will give Facebook the biggest mileage if the opportunity can be scaled quickly. Scenario A: Facebook maintains share of total global online advertising revenue at 2012 level (6%) Millions 2010 2011 2012 2013** 2014** 2015** Facebook advertising revenue - Global 1,860 3,710 5,089 5,904 6,841 7,501 Growth 99% 37% 16% 16% 10% Google advertising revenue - Global 29,321 36,531 43,686 50,837 58,906 64,585 Growth 25% 20% 16% 16% 10% ** 2013-2015 projections are based on Facebook maintaining online advertising share of 6.0% in a growing market Internet Advertising revenue - Global 63,979 72,842 84,267 97,764 113,281 124,202 Growth 14% 16% 16% 16% 10% Facebook - % of total 3.1% 5.1% 6.0% 6.0% 6.0% 6.0% Growth 64% 19% 0% 0% 0% Google - % of total 44.1% 50% 52% 52% 52% 52% Growth 14% 3% 0% 0% 0% User base Facebook - Monthly Active Users 500 802 1010 1141 1255 1343 Growth 60% 26% 13% 10% 7% Facebook - Revenue per user 3.72$ 4.63$ 5.04$ 5.17$ 5.45$ 5.58$ Growth 24% 9% 3% 5% 2% Google - Unique Users 156 173 181 190 200 Growth 11% 5% 5% 5% Google revenue per user 24$ 43.16$ 43.16$ 43.16$ 43.16$ Source: Google Investor Relations site http://investor.google.com/financial/2010/tables.html Source: Global Online Ad Revenue to reach $106B by 2017 http://www.digitaltvresearch.com/press-releases?id=21 Source: Compete SiteAnalytics http://siteanalytics.compete.com/google.com/ Source: Global Online Ad Revenue to reach $106B by 2016 http://geobrava.wordpress.com/2011/10/27/global-online-ad-revenue-to- reach-106b-by-2016/
  • 44. 39 4.6.3 Social Commerce and E Commerce No universally definition of social commerce exists (Wang and Zhang), but most discussions to date center around the combination of aspects of electronic commerce and social networking to enhance the buying experience. While the concept of social commerce has been around since around 2005, the market is still very nascent and no major success stories exist. The sizing of the market opportunity varies considerably from various sources, and for the purposes of this analysis, Booz &Co‟s report and its projections of the market size is used. Globally, estimates are $9B in 2012 and for the market to grow to $30B by 2015. Facebook‟s efforts in social commerce are centred around both the payments platform and Facebook Stores, Credits and Fan Pages, and estimates for 2012 revenue are $40 M (Trefis.com). The key challenges for Facebook in the social commerce arena are best encapsulated by the following quote from the interviews: Scenario B Facebook grows market share (organic based on sales efforts), Google retains market share Additional 1% a year 2013 2014 2015 Facebook - % of total 7% 8% 9% Google - % of total 52% 52% 52% Facebook Advertising Revenue (incremental) 978$ 2,266$ 3,726$ Google Advertising Revenue (incremental) - - - Scenario C: Facebook's partnership with Chango makes an impact - based on intent and first foray into 'search' 0.25% additional a year 2013 2014 2015 Facebook advertising revenue (incremental) 244$ 283$ 311$ Base Case - Scenario A Millions 2013 2014 2015 Facebook advertising revenue - Global 5,904$ 6,841$ 7,501$ Growth 16% 16% 10% Optimistic Case - Scenario A + B +C Total Facebook Online Advertising Revenue 7,126$ 9,390$ 11,537$ Growth 40.0% 31.8% 22.9%
  • 45. 40 “Social commerce could be an opportunity for Facebook, but the question becomes one of how Facebook can extract value from providing the “social identity” platform for other companies to build new services on top of. Should they build these services themselves?” Nelson Wee There will be constant tension between being a provider of the consumer service and being a platform, which makes this area a challenge to predict. While Facebook is a material driver of traffic to other websites, “…..a year later, 29.1% of site traffic was from the social network (Facebook), Mullen wrote in an email to Mashable.” Mashable, Feb 2012 the same article points to brands who have created storefronts on Facebook but are now stopping their operations. The two scenarios modeled above are keeping the market growth rate and maintaining market share, and a more optimistic scenario of doubling the rate of growth in the market. 4.6.4 Emerging markets – China Compared to Facebook‟s global revenue per user of $ 5.04 in 2012, the $ 0.50 revenue per user for Tencent(table below) seems very low, but this is more than compensated for by the sheer number of users that are addressable with consumer services in China. Facebook‟s $330,000 projected revenue for such a large market opportunity is representative of the regulatory and competitive challenges it faces, along with other US 2012 2013 2014 2015 Market Sizing 3,000$ 5,000$ 9,000$ 14,000$ Growth 67% 80% 56% A Base Case Keep at market growth rate Facebook Commerce 40.0$ 66.7$ 120.0$ 186.7$ Market Share 1.3% 1.3% 1.3% 1.3% B Optimistic Case Double the growth rate of the market Facebook Commerce 40.0$ 93$ 243$ 512$ Market Share 1.3% 1.9% 2.7% 3.7% Growth 133% 160% 111%
  • 46. 41 based consumer companies like Google, and this limitation is restrictive to the growth model, as penetration into developed markets reaches the 30 to 40% levels. The emerging markets online advertising revenue opportunity is not modeled but it is acknowledged that any successful foray, including joint ventures and partnerships, will materially impact the business projections for Facebook‟s performance. 4.6.5 B2B Penetrating the business-to-business market was an opportunity that was cited by a few of the interviewees, although there was caution about trying to replicate the LinkedIn direct model, and also acknowledging that LinkedIn‟ success with B2B is in a niche segment mainly for corporate recruiters. Optify‟s B2B report (US only) highlights the realities of the B2B market segment: The biggest contributor of traffic to B2B websites was Google, driving 36% of the total number of visits, and On average, less than 5% of all B2B website traffic referrals was from social media (which would include more than Facebook). For the purposes of this analysis, a more rigorous model can be built that shows the contribution and potential growth of B2B traffic referrals and monetization potential. Since the Facebook monetization model for B2B is indirect through businesses placing advertising on their site, it is assumed that the upside from B2B is built into the online advertising model. Millions Tencent Revenue 544.60$ WeChat User Base 300 QQ user Base** 798 Total Users 1098 Revenue per user 0.496$ **Source: Bloomberg Facebook User Base 611,000 Revenue Projection (2012) 303,052$ Assumption is there is no overlap between WeChat and QQ user base, since they are targetted to different audiences.
  • 47. 42 4.6.6 Platform Play The opportunity for Facebook to become a marketing platform and enabler, with the amount of data on social habits, interactions and profile information, is a double edged sword. One the one hand, it is clearly of value to advertisers and marketers who are interested in understanding consumer behavior and hence tailoring solutions to meet their needs. At the same time, the risks posed by invasion of privacy cannot be underestimated, and an area Facebook will need to tread carefully. “Commercialising privacy has always had the potential to challenge Facebook’s model. Also “if you feel like you’re being watched”, this monetization of someone’s private feeds can very quickly turn consumer wrath against Facebook.” Audrey Kuah The other opportunity for the Facebook platform is for application and software developers to build value to end consumers by leveraging the distribution potential and platform from Facebook. No clear monetization potential exists for this area, other than enriching the value for users and keeping engagement levels high, by having more third party services on the Facebook platform. Facebook‟s recent acquisition of a startup called Parse helps to build on the platform idea by offering mobile development tools to software developers (who may be businesses), thus creating a new pay-for-service subscription business for Facebook as well, an additional revenue stream very different from the online advertising revenue model. “Instead, it’s a horizontal social and identity layer that runs through thousands of apps of iOS and Android, in deep custom integrations in devices made by hardware makers like HTC, and in its latest project, Facebook Home.” Kim-Mai Cutler, Josh Constine, Techcrunch, April 2013 Horn-hann, Vishwanathan and Koh‟s research based work on the “Facebook App Economy”, demonstrates the job creation potential of the Facebook platform, concluding that conservatively, “at least 182,744 jobs were added to the US economy in 2011 as a result of the Facebook App Economy” very much related to developers building new services for the Facebook platform. Since the value of the tools is relatively small in revenue terms compared to advertising, and Parse is very much an early stage company acquired for its technology platform,
  • 48. 43 this opportunity is not modeled into the scenarios, but one that can be evaluated for future research. “More than a million third-party sites, meanwhile, have integrated Facebook's open platform to let members connect with friends and share their opinions on those sites: half of comScore's Global Top 100 websites have integrated with Facebook.” Wired, January 2011 4.6.7 Social Gaming Social gaming is another large industry on its own, and one that has been driving the success of social networks in Japan for a number of years with GREE and DeNA. Japan and Korea have well-established players in the social gaming arena with revenue generation from both advertising as well as payment for virtual goods. According to GamesBrief.com, an estimated 98 million Americans are social gamers, who are active on social networking sites. However, a large number of these are likely to be free social gamers who are interacting through the games for social reasons. Facebook should be able to capture some value from this segment, but it is still unclear if this is additive to the payments business, a reinforcement of the platform with no additional revenue potential, or potentially a large part of Facebook‟s advertising revenue in the future. Since a large part of the value is captured by the game producers and developers, and there is upside modeled into the online advertising revenue model, social gaming is not modeled as a separate opportunity. 4.7 Conclusion - Summary of opportunity Base Case - % of total 2013 2014 2015 Mobile Display Advertising 8.7% 8.8% 10.6% In-app 0.3% 0.4% 0.5% Online Advertising 90.0% 89.2% 86.8% Social Commmerce 1.0% 1.6% 2.2% Growth 16.8% 12.7% Optimistic Case - % of total Mobile Display Advertising 10.0% 10.1% 11.4% In-app 0.3% 0.3% 0.3% Online Advertising 88.5% 87.4% 84.6% Social Commmerce 1.2% 2.3% 3.8% Growth 33.5% 27.0%
  • 49. 44 Base Case: Optimistic Case: One of the clearest takeaways from this modeling exercise is the fact that Facebook is likely to be heavily dependent on online advertising as a business model for the next three years, and that while social commerce and in-app are not small revenue generating opportunities on their own, their impact on the Facebook revenue is subdued by the magnitude of the online and mobile advertising opportunities. Comparisons with historical performance of competitors is needed, as well as Facebook‟s prior performance, to help interpret the expected base case and optimistic case revenue growth trajectories for Facebook over the next 3 years. $- $2,000.0 $4,000.0 $6,000.0 $8,000.0 $10,000.0 $12,000.0 $14,000.0 2013 2014 2015 Social Commmerce Online Advertising In-app Mobile Display Advertising
  • 50. 45 The table above compares the historical performance for quarterly revenues over the last ten quarters for Facebook, Google and LinkedIn. It is acknowledged that Google has been a public company for the entire period, LinkedIn for nine of the quarters and Facebook for the last 4 quarters, and therefore the experience of being a public company and managing market expectations is in favour of LinkedIn and Google. The comparison here is for revenue only and does not include all the other factors that need to be considered in the evaluation of a company‟s performance. Google has a much larger revenue base and has managed a very healthy average quarterly growth rate of 5.8% and annual 2011-2012 growth rate of 32%, with a search revenue model and high market share in the search category. While LinkedIn has a diversified revenue stream with 30% of the revenue from online advertising, and a much lower quarterly revenue base, the impressive average quarterly growth rate of 15.1% will still be watched carefully, and comparisons to Facebook are inevitable. Based on these comparatives, Facebook would need to be delivering on the optimistic scenario over the next three years, to be considered as achieving its potential and delivering the right revenue growth levels to please investors. The online advertising revenue model is the core revenue stream for Facebook over the next few years, andneeds to be well optimized to keep delivering the growth. At the same time, Historical Growth Comparatives for Facebook, LinkedIn and Google Source: www.ycharts.com Source: http://www.forbes.com/sites/tomiogeron/2012/02/09/linkedin-q4-earnings-revenue-beat-street/ Facebook 2013-03 2012-12 2012-09 2012-06 2012-03 2011-12 2011-09 2011-06 2011-03 Revenue growth 1.46 1.59 1.26 1.18 1.06 1.13 0.95 0.90 0.73 Revenue growth -8% 26% 7% 12% -6% 19% 7% 22% Average quarterly growth (2013 - 2015) 8.6% Google 2013-03 2012-12 2012-09 2012-06 2012-03 2011-12 2011-09 2011-06 2011-03 Revenue 13.97 13.22 14.10 12.21 10.64 10.58 9.72 9.03 8.58 Revenue growth 5.7% -6.2% 15.5% 14.8% 0.6% 8.8% 7.7% 5.3% Average quarterly growth (2013 - 2015) 5.8% LinkedIn 2013-03 2012-12 2012-09 2012-06 2012-03 2011-12 2011-09 2011-06 2011-03 Revenue 324.70 303.62 252.03 228.21 188.46 167.7 139.48 121.04 93.93 Revenue growth 6.9% 20.5% 10.4% 21.1% 12.4% 20.2% 15.2% 28.9% Average quarterly growth (2013-2015) 15.1% Annual Growth Rates 2012 2011 Facebook 37% 88% Google 32% Linkedin 86%
  • 51. 46 diversificationof revenue streams into opportunities like mobile advertising, social commerce and in-app advertising are necessary to demonstrate the strength of the Facebook platform. Delivering on all these priorities will pose both a strong strategic and tactical challenge to Facebook over the next several years.
  • 52. 47 5. Conclusion and suggestions for future research 5.1 Conclusion Social networks can be now considered a mainstay with consumers and part of the marketing mix with businesses. The momentum with Facebook‟s user growth and the IPO has raised the level of scrutiny that public social networks,Facebook in particular, receive in the press and popular media. Facebook increasingly is positioned as a competitor to Google, the consumer search engine giant with a strong moat in its monetization engine, and will continue to evolve and close the gap with the search giant, with opportunities to optimize its online advertising model. “Historically, any media, when starting out, has historically depended on advertising for adoption and rapid growth (examples of TV, radio and print).” RohitDadwal To understand the potential for the online advertising revenue model for a social network like Facebook requires an understanding of the consumer adoption and engagement with the network. Variations in usage levels are expected across age groups, psychographics, tenure with the network and adoption levels of technology. While the typical activities, “Like” and “Share”, would be common across all categories of users, variations in engagement also would relate to the additional services that users use, like third party games services and apps, as well as the amount of content created and uploaded. The second pillar critical to the success of the online advertising model are the people who sell advertising to customers. Traditional and digital media agencies are all learning and responding to customer requests to make sense of these social networks and the impact on consumer behavior. Online advertising on social media is a format that these agencies, and marketers within companies, cannot ignore and are learning to incorporate into the traditional marketing mix. Self-service models for buying advertising on this media creates additional opportunities for these social networks to reach small and medium customers who are increasingly leveraging this low cost (relatively) to reach consumers. The industry around online advertising has evolved quickly over the last 10 years. In some countries, up to one quarter of marketing budgets are spent on online advertising as marketers realize the value and effectiveness of the medium in meeting their
  • 53. 48 objectives. Online advertising on social networking (which would include all the additional channels like mobile) is increasing in influence as a vast majority of consumers start accepting advertising within their social network experience, as long as it remains mainly non-intrusive. This paper has presented a conceptual framework to explore these three legs of consumer adoption, evangelism of social media solutions by marketers and the online advertising revenue model that reinforce each other in a virtuous cycle, as a way of developing a view of the future revenue potential of Facebook. The research findings indicate consumers have an emotional connection with social networks, have increased their levels of usage of social networks from a year ago and now use them at least once a day. This bodes well for Facebook‟s future, and must at the same time be interpreted with a word of caution. Any network is only as strong as its set of interactions among its users, and this applies equally to social networks. As some of the youth start leaving Facebook, or at least start using it less often, and as individual niche services provided by startups draw some users away, this may pose a concern for the Facebook revenue model in the medium to long term. The three year revenue forecasts create a view of the potential impact of Facebook‟s online advertising revenue growth, while exploring and building other new potential revenue streams that Facebook could invest in for future growth and diversification beyond online advertising. Valuations for the company were not specifically directly evaluated in these models, recognizing that the analytical models built were focused on the revenue top line and that a full financial model would be necessary to predict ranges for potential market valuations and market sentiments. It is clear, based on the assumptions around the revenue models built, that online advertising will continue to be a major contributor to the overall revenue growth, and Facebook would need to perform to the optimistic revenue scenarios, at the very least, to continue the momentum they have achieved in the market and to justify its valuations. Hence, while online advertising will support a large part of the growth model for Facebook, opportunities around mobile advertising, search, social commerce and in-app will need to be developed fully to support the growth necessary for Facebook to perform to market expectations.
  • 54. 49 5.2Limitations of the research The research in this paper explored consumer sentiments via consumer surveys, a holistic view of the online advertising model through interviews and secondary research and a revenue model through a set of researched comparative data and assumptions. There are, however, limitations despite the extensive research. a. Sample size for consumer survey The sample size for the consumer survey would be considered small (128 respondents) and not fully representative of the global social network user population. The sample size could easily be enlarged to get better insights, and further segmentation beyond the two large regions of US and ROW is possible to help with deeper insights. b. Snapshot view The social networking and online advertising space are changing at a rapid pace, with regular announcements of strategic moves by various players to gain competitive advantage. This research was conducted and completed by March 2013 to allow sufficient time for the analysis and reporting to be completed, and there are likely to be key developments since then that may alter some of the results. c. Interview bias Personal bias towards particular services for the interviewees, as a consumer, may have skewed some of the interview discussions and responses. 5.3 Future research recommendations The expected IPO of two new popular social networking sites, Twitter and Pinterest, in 2013 is likely to shift the landscape for both social networks and the competition for online advertising dollars. This study raises some further areas of research that are worth exploring. Increasing the sample size for the consumer research and running a global study incorporating regional differences on engagement, frequency of use and advertising affinity would create value in understanding social networking users better. In-depth regional studies have been conducted for niche areas in selected regions, but no comprehensive view globally exists.
  • 55. 50 Modelling the lifetime value of the social networking user for marketers across the regions could be helpful. While market research companies like Syncapse have done some studies for the US, no clear academic view and research exists today. Building a cost model for these social networks would be a challenging exercise and worth exploring. Understanding the impact of costs on the top line projections would help build a full P&L view of the operations of these social networks. “Unbundling of social networks” was published as an article in May 2013 as the “greatest threat” (Tomasz Tunguz). New services by startups, that address a subset of the needs and services that Facebook provides, will draw users away over time. A study of the impact and adoption of these new services and modeling user engagement would provide for further understanding of the impact users have on the adoption of social networks.
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  • 64. 59 Bibliography 360i, Social Commerce Playbook http://www.360i.com/reports/social-commerce- playbook/ Adam Westlake, May 2012, MiXi looking to sell itself? http://japandailypress.com/mixi- looking-to-sell-itself-152139 Akky Akimoto, December 2012, 2012 has been a big year on the Japanese social media scene http://www.japantimes.co.jp/life/2012/12/19/digital/2012-has-been-a-big-year-on- the-japanese-social-media-scene/#.UY-p2bWLBVp Alexia Tsotsis, December 2012, Twitter Brought in $350M in 2012, So When Will It Hit $ 1B? http://techcrunch.com/2012/12/18/god-bless-us-every-one/ Alyson Shontell, March 2013, Business Insider, Teens are Bored of Facebook http://www.businessinsider.com/its-official-teens-are-bored-of-facebook-2013- 3 Amy Renee Reitz, Colorado State University, Summer 2012, Online Consumer Engagement: Understanding the Antecedents and Outcomes http://digitool.library.colostate.edu///exlibris/dtl/d3_1/apache_media/L2V4bGlicmlzL2R0b C9kM18xL2FwYWNoZV9tZWRpYS8xNzE2Mjg=.pdf Anthony J Bradley, January 2010, A New Definition of Social Media, http://blogs.gartner.com/anthony_bradley/2010/01/07/a-new-definition-of-social-media/ Benjamin Pimentel, April 2013, Facebook dominating in mobile-advertising market, IDC reports http://www.mercurynews.com/business/ci_22988207/facebook-dominating- google-mobile-advertising-market-idc-reports Byrne Hobart, February 2011, What A Deep Dive Into LinkedIn's S-1 Reveals About The Company's Growth Potential http://www.businessinsider.com/what-linkedins-ipo-filing- reveals-about-the-companys-growth-potential-2011-2#ixzz2T9xYfj2t Charles Arthur, November 2010, Life inside Facebook: how head of developers organises 500 people http://www.guardian.co.uk/technology/blog/2010/nov/22/facebook- developer-life-inside
  • 65. 60 Christopher Mims, Quartz, January 2013, China‟s biggest threat to Facebook Just Blew it http://www.businessinsider.com/chinas-biggest-threat-to-facebook-just-blew-it-2013- 1#ixzz2NlTUeRZl Dan Dzombak, August 2012, How Much Is a User Worth? http://www.fool.com/investing/general/2012/08/27/how-much-is-a-user-worth.aspx Hamish Mckenzie, November 2012, YY.com soars on opening. Is the curse of the Chinese Internet IPO over?http://pandodaily.com/2012/11/28/yy-com-soars-on-opening- is-the-curse-of-the-chinese-internet-ipo-over/ Heather Leonard, April 2013, What is a Facebook Fan worth? http://www.businessinsider.com/what-is-a-facebook-fan-worth-2013-4#ixzz2RYhtRFLJ IAB Europe, September 2010, Consumers Driving the Digital Uptake http://www.iab.net/media/file/White-Paper-Consumers-driving-the-digital- uptake_FINAL.PDF IAB, April 2013, IAB Internet Advertising Revenue Report, 2012 Full Year Results http://www.iab.net/media/file/IAB_Internet_Advertising_Revenue_Report_FY_2012_rev. pdf IAB, September 2012, Economic Value of the Advertising-Supported Internet Ecosystem http://www.iab.net/media/file/iab_Report_September-24-2012_4clr_v1.pdf Information Solutions Group, Kabam Social Gamer Research Study, September 2011 http://www.gamesbrief.com/assets/2011-Kabam-ISG-Social-Games-Research-Results- Industry-Version.pdf Ingrid Lunden, January 2013, Facebook‟s Q4 Payment Revenue, Including less than $5M in Gifts, Was Flat at $256M after $66M revenue charge http://techcrunch.com/2013/01/30/facebooks-q4-payments-revenue-flat-at-256m-after- 66m-revenue-charge/ iResearch Consulting Group, February 2013, China Online Advertising Revenue Impressively Increases 46.8% http://www.iresearchchina.com/views/4712.html iResearch Consulting Group, November 2012, Revenue of Online Advertising Hits 21.37 Billion Yuan in Q3 2012 http://www.iresearchchina.com/views/4557.html
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  • 68. i APPENDIX A: Consumer Survey Questionaire
  • 69. ii
  • 70. iii
  • 71. iv
  • 72. v
  • 73. vi
  • 74. vii APPENDIX B: Interviewees List and Questionaire Interviewee List: The following 10 people were interviewed for the research: 1. Audrey Kuah, Country Head, Aegis Media (Marketing Agency, Singapore) 2. JoostNienhius, CEO, Tripolis Solutions (Email and social marketing, Netherlands) 3. Nelson Wee, Managing Director, SK Planet, Southeast Asia (Mobile services, Singapore) 4. ChuanLuo, CEO, AppChina (Mobile and online services, China) 5. Andrew Lazarro, Chief Brand Officer Worldwide, OMD (Marketing agency, US) 6. SriramAdukoorie, Co-founder and CEO, Four Interactive (Local online search, India) 7. Simon Piff, Associate VP, IDC Asia Pacific (Research, Singapore) 8. JawazIllavia, IS and Innovation Director, Reckitt Benckiser (Technology and Marketing, UK) 9. RohitDadwal, Managing Director, Asia Pacific, Mobile Marketing Association (Mobile marketing advocacy group, Singapore) 10. Arthur Chang, Strategy Director, OMD (Marketing agency, Singapore) Interview Questionaire Guidelines: General opening questions: 1. From your professional perspective, what is the current state of social networks? 2. What do you think is the future of social networks in the next 2 years? 3. Are there any pitfalls? 4. Which would you say are the successful social networks? Why? (Check monetisation, users, design, user engagement, stock price, etc if not mentioned) 5. Which would you say are the unsuccessful social networks? Why? 6. Rank importance of social networks from a professional standpoint. For marketers: 1. How important are social networking sites to your clients? 2. What social networking site do you most recommend for your clients? Why? How are they faring in terms of your most important factor?
  • 75. viii 3. Where have they been less successful? 4. What more would you like them to do for your client? Why? For all: 1. What is your view on the Facebook IPO? 2. What are the factors that determine success/failure for an online social network? 3. What recommendations would you make to Company/Competitor X to keep their business evolving? 4. Recommend some changes to their technology approach. 5. What should Facebook do in mobile? 6. Recommend some changes to their partnership/distribution approach. 7. Recommend some changes to their approach to their marketing. 8. How should these social networks approach the B2C segment? 9. How should these social networks approach the B2B segment? 10. What are the possible disruptions that will impact growth and sustainable differentiation? 11. What additional areas would you have these online social networks focus on? 12. Describe in one sentence, “Facebook will become………” 13. Describe a business you would start revolving around online social networks. 14. What customer features could you think of that will help make social networks better?