This document provides an overview of the rise of social networking and its impact. It discusses how social networks have transformed communication and brought people together online on a massive global scale. The two largest social networks, Facebook and Google, now have hundreds of millions of users worldwide. While critics worry that social networks are an unsustainable bubble, proponents argue that networks have found ways to monetize users and will continue growing in importance for communication, business, and society.

1. A world of connections
A special report on social networking
January 30th 2010

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3. The Economist January 30th 2010 A special report on social networking 1
A world of connections
Also in this section
Global swap shops
Why social networks have grown so fast
and how Facebook has become so dominant.
Page 3
Twitter’s transmitters
The magic of 140 characters. Page 5
Pro ting from friendship
Social networks have a better chance of
making money than their critics think.
Page 6
A peach of an opportunity
Small businesses are using networks to
become bigger. Page 8
Yammering away at the o ce
A distraction or a bonus? Page 9
Social contracts Online social networks are changing the way people communicate,
The smart way to hire workers.
Page 10
work and play, and mostly for the better, says Martin Giles
Privacy 2.0 T HE annual meeting of the World Eco-
nomic Forum in Davos, currently in
progress, is famous for making connec-
is outside the United States.
Although Facebook is the world’s big-
gest social network, there are a number of
Give a little, take a little. Page 12
tions among the global great and good. But other globetrotting sites, such as MySpace,
when the delegates go home again, getting which concentrates on music and enter-
Towards a socialised state even a few of them together in a room be- tainment; LinkedIn, which targets career-
The joy of unlimited communication. comes di cult. To allow the leaders to minded professionals; and Twitter, a net-
Page 13 keep talking, the forum’s organisers last working service that lets members send
year launched a pilot version of a secure out short, 140-character messages called
online service where members can post tweets . All of these appear in a ranking
mini-biographies and other information, of the world’s most popular networks by
and create links with other users to form total monthly web visits (see chart 1, next
collaborative working groups. Dubbed the page), which also includes Orkut, a Goo-
World Electronic Community, or WEL- gle-owned service that is heavily used in
COM, the forum’s exclusive online net- India and Brazil, and QQ, which is big in
work has only about 5,000 members. China. On top of these there are other big
But if any service deserves such a grand national community sites such as Skyrock
title it is surely Facebook, which celebrates in France, VKontakte in Russia, and Cy-
Acknowledgments its sixth birthday next month and is now world in South Korea, as well as numerous
The author would like to express particular thanks for the second most popular site on the inter- smaller social networks that appeal to spe-
their help in preparing this special report to Pete net after Google. The globe’s largest online ci c interests such as Muxlim, aimed at the
Blackshaw of Nielsen; Ron Burt of the University of
Chicago’s Booth School of Business; Bill Gurley of social network boasts over 350m users world’s Muslims, and ResearchGATE,
Benchmark Capital; Keith Hampton of the University of which, were it a nation, would make Face- which connects scientists and researchers.
Pennsylvania; Bradley Horowitz of Google; Jason book the world’s third most populous after
Kaufman of the Berkman Institute; Cameron Marlowe and
Ethan Beard of Facebook; D.J. Patil of LinkedIn; and Clara China and India. That is not the only strik- Going public
Shih of Hearsay Labs. ing statistic associated with the business. All this shows just how far online commu-
Its users now post over 55m updates a day nities have come. Until the mid-1990s they
A list of sources is at
on the site and share more than 3.5 billion were largely ghettos for geeks who hid be-
Economist.com/specialreports pieces of content with one another every hind online aliases. Thanks to easy-to-use
week. As it has grown like Topsy, the site interfaces and ne-grained privacy con-
An audio interview with the author is at
has also expanded way beyond its Ameri- trols, social networks have been trans-
Economist.com/audiovideo can roots: today some 70% of its audience formed into vast public spaces where mil- 1

4. 2 A special report on social networking The Economist January 30th 2010
2 lions of people now feel comfortable using yammering and chattering smacks of an-
their real identities online. ComScore, a other internet bubble in the making. They
market-research rm, reckons that last Oc- argue that even a huge social network such
tober big social-networking sites received as Facebook will struggle to make money
over 800m visitors. The social networks’ because ckle networkers will not stay in
greatest achievement has been to bring hu- one place for long, pointing to the example
manity into a place that was once cold and of MySpace, which was once all the rage
technological, says Charlene Li of the Al- but has now become a shadow of its for-
timeter Group, a consulting rm. mer self. Last year the site, which is owned
Their other great achievement has been by News Corp, installed a new boss and
to turn themselves into superb tools for red 45% of its sta as part of a plan to re-
mass communication. Simply by updating vive its fortunes. Critics also say that the
a personal page on Facebook or sending networks’ advertising-driven business
out a tweet, users can let their network of model is awed.
friends and sometimes the world know Within companies there is plenty of
what is happening in their lives. Moreover, doubt about the bene ts of online social
they can send out videos, pictures and lots networking in the o ce. A survey of 1,400
of other content with just a few clicks of a chief information o cers conducted last
mouse. This represents a dramatic and year by Robert Half Technology, a recruit-
permanent upgrade in people’s ability to in ever greater numbers. ment rm, found that only one-tenth of
communicate with one another, says Social-networking sites’ impressive them gave employees full access to such
Marc Andreessen, a Silicon Valley veteran growth has attracted much attention be- networks during the day, and that many
who has invested in Facebook, Twitter and cause the sites have made people’s perso- were blocking Facebook and Twitter alto-
Ning, an American rm that hosts almost nal relationships more visible and quanti- gether. The executives’ biggest concern
2m social networks for clients. able than ever before. They have also was that social networking would lead to
And people are making copious use of become important vehicles for news and social notworking, with employees using
that ability. Nielsen, a market-research channels of in uence. Twitter regularly the sites to chat with friends instead of do-
rm, reckons that since February 2009 scores headlines with its real-time updates ing their jobs. Some bosses also fretted that
they have been spending more time on so- on events like the Mumbai terrorist attacks the sites would be used to leak sensitive
cial-networking sites than on e-mail, and and on the activities of its high-pro le us- corporate information.
the lead is getting bigger. Measured by ers, who include rap stars, writers and roy- This special report will examine these
hours spent on them per social-network alty. And both Twitter and Facebook issues in detail. It will argue that social net-
user, the most avid online networkers are played a starring role in the online cam- works are more robust than their critics
in Australia, followed by those in Britain paign strategy that helped sweep Barack think, though not every site will prosper,
and Italy (see chart 2). Last October Ameri- Obama to victory in the presidential race. and that social-networking technologies
cans spent just under six hours sur ng so- are creating considerable bene ts for the
cial networks, almost three times as much Delivery time businesses that embrace them, whatever
as in the same month in 2007. And it isn’t But like Mr Obama, social networks have their size. Lastly, it will contend that this is
just youngsters who are friending and pok- also generated great expectations along just the beginning of an exciting new era of
ing one another Facebook-speak for mak- the way on which they must now deliver. global interconnectedness that will spread
ing connections and saying hi to your pals. They need to prove to the world that they ideas and innovations around the world
People of all ages are joining the networks are here to stay. They must demonstrate faster than ever before. 7
that they are capable of generating the re-
turns that justify the lofty valuations inves-
Who will be my friend? 1 Sociable types 2
tors have given them. And they need to do
Social-networking sites, total unique visitors all this while also reassuring users that Average time spent on social-networking sites
October 2009, m their privacy will not be violated in the October 2009, hours per user
pursuit of pro t.
0 50 100 150 200 0 2 4 6 8
In the business world there has also
Facebook 430.2 been much hype around something called Australia
Windows Live Enterprise 2.0 , a term coined to describe Britain
MySpace e orts to bring technologies such as social Italy
Baidu networks and blogs into the workplace. United States
Fans claim that new social-networking of-
Twitter South Korea
ferings now being developed for the cor-
Orkut porate world will create huge bene ts for Spain
Hi5 businesses. Among those being touted are Brazil
QQ services such as Yammer, which produces Germany
LinkedIn a corporate version of Twitter, and Chatter, France
deviantART
a social-networking service that has been Japan
developed by Salesforce.com.
Source: comScore Source: Nielsen
To sceptics all this talk of twittering,

5. The Economist January 30th 2010 A special report on social networking 3
Global swap shops
Why social networks have grown so fast and how Facebook has become so dominant
F ACEBOOK has not only helped people
to make zillions of new connections, it
has also inspired a screenplay. A lm called
Facelift
Facebook, number of registered users, m
3
made it easy to publish them online. Over
2.5 billion photos a month are uploaded to
Facebook, making it one of the largest pho-
The Social Network , due to be released to-sharing sites on the web. In Asia video
250
later this year, will trace the site’s meteoric content is hugely popular on services such
rise from its foundation in 2004 to become 200
as Cyworld.
king of the social-networking world. How Rest of the world One reason that people are willing to
have social networks managed to shoot to 150 share so much private information on so-
such prominence that they are already be- cial networks is that many of the sites have
ing given the Hollywood treatment? 100 developed detailed sets of privacy controls
The most important reason for their that let users decide what others can and
phenomenal growth is something called 50 cannot see. This process has had its hic-
United
the network e ect . Originally coined to States cups. Facebook, for instance, got into hot
describe the rapid spread of telephones, 0 water when in late 2007 it launched a ser-
2004 05 06 07 08 09
this states that the value of a communica- vice called Beacon that tracked users’ pur-
Source: Facebook
tions network to its users rises exponen- chases on some other websites and auto-
tially with the number of people connect- matically alerted their friends to them.
ed to it. This implies that the audience of a power they will need because of the net- After a furious reaction from users, Beacon
social network will grow slowly at rst, work e ect. Some sites set up in the 1990s was rst modi ed and then buried for
then explode once it passes a certain point. su ered a series of outages as they strug- good. Last year Facebook was named one
Je Weiner, the chief executive of Linked- gled to keep up with demand. of America’s 20 most trusted companies
In, which now has some 58m members, The latest crop of networks, most of on privacy issues by TRUSTe, an organisa-
says it took the company 16 months to which were launched ve or six years ago, tion that rates companies’ online privacy
reach its rst million users, whereas the have bene ted from a dramatic fall in the policies though there was another outcry
most recent additional million came on cost of hardware needed to store and pro- in late 2009 when it modi ed its privacy
board in only 11 days. Facebook has had a cess data. They have also been able to use policy yet again.
similar experience. It took almost ve free, open-source software to build sys- Another reason that the networks have
years to drum up its rst 150m users, but tems that scale quickly and easily. And become so popular is that there is so much
just eight months to double that number they have come up with some tailor-made to do on them, mostly because companies
(see chart 3). solutions to cope with rapid growth. such as Facebook and MySpace have al-
The network e ect has been ampli ed lowed independent developers to create
by the internet’s global reach. Gina Bian- Thanks for the memory programs, known as apps , which run on
chini, the boss of Ning, says that within At Facebook, for example, the rm’s soft- their networks and tap into their treasure
two months of the rm’s launch in 2005 ware engineers built a system called Multi- trove of customer data. These apps range
people from 80 countries had signed up to Feed that searches databases near-instant- from the inane to the inspiring. Super-
networks that it had created on behalf of ly for relevant news from a person’s Poke!, for example, lets people spank ,
others. The Ning-hosted network of 50 friends. This has allowed the network to grope and kiss their Facebook friends
Cent, a rapper, has 490,000 members the add many millions of new users without online, whereas Causes enables them to
world over, from Australia to Zambia. damaging its ability to provide a constant create virtual groups to pursue charitable
Some rms have specially tailored their stream of up-to-date news to people’s endeavours.
service to broaden its international appeal. pages. In another feat of technical wizard- This division of labour pays dividends
Facebook, which is available in 70 di erent ry, its engineers have quintupled the per- all round. Developers get access to the net-
languages, o ers Facebook Lite, a stripped- formance of an open-source memory sys- works’ huge audience, network users en-
down version of its main site that is popu- tem called memcached, which allows joy free access to thousands of clever apps
lar in countries without fast broadband frequently used data to be retrieved faster and the networks acquire more users be-
connections. than if stored in a database. cause the apps make their sites more ad-
All this has allowed social sites to grow Such creativity has enabled the net- dictive. Facebook now has over 1m devel-
quickly without having to spend a fortune works to cope with a tsunami of data, opers creating software for it and its online
on marketing. But it has also created a huge many of which are being produced by an- directory contains over 500,000 apps.
technical challenge. Most web businesses other set of technologies that have also Twitter has spawned over 50,000 apps, in-
can add servers and databases in a fairly helped to drive the growth of social net- cluding o erings from rms such as Twit-
linear fashion as they acquire more users, working. Personal digital cameras and vid- pic, which lets people post photos to their
but social networks nd it almost impossi- eo recorders have greatly reduced the cost Twitter feeds, and Twitscoop, which high-
ble to gauge exactly how much computing of producing high-quality images and lights popular topics being talked about on 1

6. 4 A special report on social networking The Economist January 30th 2010
2 the service at any moment. It’s basically Facebook’s to lose , says
MySpace invader 4
That leaves the networks free to con- Mark Pincus, the chief executive of Zynga,
centrate on innovations that encourage Social-networking sites a social-gaming rm that develops apps to
even more sharing. The most striking of Unique visitors in America, m run on the service.
these is Facebook Connect, which the 100
Not so long ago, exactly the same thing
company launched just over a year ago. might have been said of MySpace. The site
Mark Zuckerberg, the company’s founder, 80 was riding high when News Corp bought it
describes this as inverting the model of MySpace for $580m in 2005. But a few years later it
social networking. Instead of being ob- 60 was going downhill (see chart 4). Some see
liged to come to Facebook’s website, users 40
this as a sign that large social networks are
can take their Facebook identity and net- Facebook destined to disintegrate when they be-
work of friends to other websites and to 20 come too big. But there was nothing inev-
devices such as game consoles. This means itable about MySpace’s decline: the site
they no longer have to create a new online 0 simply made a series of strategic mistakes.
2004 05 06 07 08 09
group of friends each time they visit a dif- Faced with demanding revenue targets
Source: comScore
ferent destination on the web. from News Corp, it neglected its technol-
The way it works is that Facebook’s ogy and added new features such as job
partner rms install Connect buttons on their main doorway to the internet. He is listings and horoscopes that drove web
their websites and devices which give Fa- so keen to realise his vision that he is said tra c but had nothing to do with its core
cebook users automatic access to informa- to have turned down o ers to buy the com- users’ interest in music, lm and other en-
tion about their friends’ activities. At pany which would have made him an in- tertainment. As the site became more clut-
Hu Po Social News, a site run by the Huf- stant billionaire. tered than a teenager’s bedroom, some of
ngton Post, a well-known American blog, Mr Zuckerberg also wants Facebook to those users logged o for good. MySpace’s
Facebook users can see what their friends map out as much as possible of what peo- share of the American social-networking
have been reading and exchange stories ple in the social-networking industry refer market fell from 67% in September 2008 to
and comments with them. At Net ix, to as the social graph , a fancy name for a 30% in the same month of last year, accord-
which hires out DVDs and Blu-ray discs by model of nodes and links in which nodes ing to Hitwise, a research rm.
post, they can see which lms their friends are people and the links between them
have watched and what other people have represent friendships. He thinks that the Network defects
written about them. Facebook says there relationships between people and objects Owen Van Natta, the network’s new boss,
are now some 80,000 Connect-enabled such as their o ce buildings, schools and has already got rid of many of the products
websites and devices, such as Microsoft’s other things can be represented in the that were added and brought in a new
Xbox console. same way. The more people that join Face- management team. MySpace is also clean-
Connect is just the latest in a long line of book, the greater the insights the business ing up its pages and developing tools that
innovations that have helped to turn Face- will have into the nature of these relation- will let its 100m users search its huge range
book into the dominant global social net- ships. And the more it knows about what of content more e ciently. And it has
work. It also re ects the scale of Mr Zucker- matters to people, the better it should be at stopped pursuing Facebook to concentrate
berg’s ambition. For the social web, I pro ting from that knowledge. on a strategy that Mr Van Natta describes
think the killer app is Facebook, he says. Some people think that Facebook’s net- as o ering people the ability to engage in
His goal is to connect as much of the work e ect is now so great that it will be content and socialise at the same time .
world’s population as possible via the net- impossible to knock it o its pedestal as The idea is that people with, say, similar
work and then to get its users to use it as the world’s largest online meeting place. tastes in music will connect with one an-
other on MySpace and then swap other
material too. Last year the rm bought
iLike, which allows users to share playlists,
and Imeem, a music-streaming service. Its
new focus, Mr Van Natta insists, will allow
MySpace to rise Phoenix-like from the
mess in which he found it. But the admit-
tedly brief history of social networking
suggests that once a network e ect has
gone into reverse it rarely returns to form.
Facebook, for its part, is unlikely to
make the same strategic mistakes as My-
Space because it pays much more atten-
tion to the plumbing that connects people
with each other than to the content that
ows through it. The people at Facebook
are essentially utilitarians, explains Matt
Cohler, a former employee who is now a
partner at Benchmark Capital, a venture-
capital rm. They want to give people the 1

7. The Economist January 30th 2010 A special report on social networking 5
2 very best technology for sharing and then To help generate new ideas, the rm buy it, but was rebu ed. Despite their dif-
get out of their way. That technology is so holds all-night hackathons at which en- ferences, both rms are powerful commu-
good that people are willing to stick gineers work on their pet projects, fuelled nication tools that compete for people’s at-
around on the site as it grows, rather than by Chinese takeaways and energy drinks. tention (see box). They also have some-
abandoning it for something edgier. It also gives its people plenty of freedom to thing else in common: an enormous price
Another reason for optimism is the try out their ideas on Facebook’s site. Mr tag. Last year Twitter raised a round of ven-
rm’s hacker-type culture which has pro- Schroepfer is particularly proud of the fact ture capital that valued the company at $1
duced the innovations that have made the that the company has only one engineer billion, even though it had yet to turn a pro-
service so addictive. Mike Schroepfer, Face- for every 1.2m users. t. And an investment in the preference
book’s head of engineering, says that one It is always possible that a better shares of Facebook by a Russian company
of its mottos is move fast and break stu . plumber could turn up, which explains valued it at $10 billion. Such astronomical
What matters is getting fresh products out why Facebook’s bosses are so wary of po- sums are a sign that investors think the
to users quickly, even if they do not always tential competitors. The network has been best social networks will become big
work as intended. watching Twitter closely and even tried to money-spinners. 7
Twitter’s transmitters The magic of 140 characters
B IZ STONE, one of Twitter’s co-foun-
ders, uses the term social alchemy to
describe the way in which short, seeming-
cial networks the most active users typi-
cally produce just 30% of all content. An-
other survey published in June by
ly inconsequential 140-character mes- Sysomos, a research rm that had ana-
sages are often transformed into some- lysed 11.5m Twitter accounts, found that
thing of real value. Imagine, he says, that one in ve people that were signed up to
you are having a drink at an airport bar the service had never posted anything.
waiting to catch your ight. You send out a Another big di erence between Twit-
tweet explaining where you are and what ter and Facebook is in the kind of content
you are drinking. Perhaps you get no re- that gets sent over their networks. Face-
sponse. But it is also possible that a friend book allows people to exchange videos,
who is following you on Twitter hap- photos and other material, whereas Twit-
pens to be in the airport at the same time, ter is part-blog, part e-mail. There’s a real
sees your tweet and comes over to say hel- di erence here between the power of
lo. Thus what would otherwise have been multimedia and the power of text, says
a solitary moment is magically trans- Dom Sagolla, the author of a book about
formed into a pleasant encounter. the art of twittering.
Such serendipity helped Twitter attract Even so, there are some tensions be-
58m web visitors in October last year, ac- tween the two services. Last year, after its
cording to comScore. Recently its growth public tweets they like. The service, which takeover talks with Twitter stalled, Face-
appears to have faltered in America, but boasts Ashton Kutcher (4.3m followers) book introduced several Twitter-like
the service is still expanding in countries and Oprah Winfrey (3m) among its most changes to make it more attractive for real-
such as Japan and Germany. This has led popular users, is in essence a broadcasting time postings. It also gave more visibility
to speculation that it could eventually system that lets users transmit short to its pages for athletes, celebrities and
make a dent in Facebook’s fortunes, even bursts of information to lots of strangers musicians and lifted the limits on the
though size-wise it is not in the same as well as to their pals. Facebook, for its maximum number of fans that they could
league. Those who see a looming clash part, is more of an intimate, continuing have on the site.
note that both companies are in the busi- conversation between friends. Still, Mr Stone says he sees Twitter as
ness of helping people to share informa- This di erence is revealed in research more akin to an out t like Google than to
tion, and both have a real-time element to conducted by Mikolaj Jan Piskorski, a pro- Facebook. He describes the business as
their services. fessor at Harvard Business School, and an information company whose users
That is true, but the services di er in one of his MBA students, Bill Heil. They are keen to nd out answers to what is
two important respects. The rst is the na- surveyed just over 300,000 Twitter users happening in the world. The billions of
ture of the relationships that underlie in May 2009 and found that more than tweets that Twitter is gathering up could
them. On Facebook, users can communi- half of them tweeted less than once every certainly be the basis for a vast, searchable
cate directly only if one of them has 74 days. They also discovered that the archive. The challenge facing Mr Stone
agreed to be a friend of the other. On most proli c 10% of twitterers accounted and his colleagues is to nd smart ways of
Twitter, people can sign up to follow any for 90% of all tweets. On other online so- transforming those raw data into pro ts.

8. 6 A special report on social networking The Economist January 30th 2010
Pro ting from friendship
Social networks have a better chance of making money than their critics think
E NTREPRENEURS in Silicon Valley, only
half-jokingly, call it the URL strategy.
The three letters usually stand for Uniform
in America, its biggest advertising market,
rose only by a modest 4% to $1.2 billion,
says eMarketer, a market-research rm.
Resource Locator the unique address of That was still an achievement, because
any le that is accessible via the internet. the total online advertising market shrank
But in the world of internet start-ups, URL in 2009. The picture would have been even
has another meaning: Ubiquity rst, Rev- brighter without MySpace, whose rev-
enue Later. This pretty much describes the enues are thought to have fallen last year.
strategy of most big online social net- Another drop seems likely this year when
works, which over the past few years have a deal that MySpace struck with Google to
concentrated on piling on users rather than handle search advertising on its site comes
worrying about pro ts. That has allowed up for renewal. Assuming a new agree-
them to build huge followings, but it has ment can be reached, it will probably be
also raised a big question-mark over their less generous than the old one, which of-
ability to make money from the audiences fered MySpace $900m over three years if it
they have put together. hit certain minimum tra c targets.
At issue is whether the social-network- The broader outlook for networking
ing industry can come up with a wildly sites is more encouraging. This year
successful form of advertising that propels eMarketer expects revenues to grow by
it to stardom in the same way that Google over 7% in spite of MySpace’s predicament.
has been able to make billions of dollars ComScore, another market-research rm,
from the targeted ads that run alongside has found that one in ve display ads deed, Mr Lynton is famous for having once
the search results it serves up. Without viewed by American web users last June declared that nothing good had ever come
such a formula, runs the argument, social ran on social-networking sites, with My- from the internet, which was a jab at on-
networks such as Facebook will never Space still accounting for the biggest chunk line piracy of lm studios’ content.
amount to much. of the total. Another study in Britain last But something good did come from an
Doubters claim that the networks face August came up with a similar proportion, online experiment that Sony conducted
two big handicaps. The rst is that people with telecoms companies and retailers last summer. The studio ran a series of ads
logged into social-networking sites are providing a big chunk of the business. on Facebook promoting three of its lms
there to hang out with their friends, so they Why are the networks becoming more after they had just featured in a traditional
will pay no attention to ads. The second is popular when their click-through rates are television campaign. District 9 was
that because the sites let users generate so low? One reason is that advertisers are aimed at young men, Julie & Julia at mid-
their own content, they will nd it hard to being drawn to the leading sites by their dle-aged women and The Ugly Truth at
attract advertisers because brands will not sheer scale. Facebook’s audience is bigger younger women. Awareness of the lms
want to take the risk of appearing along- than any TV network that has ever existed was measured after the TV ads had run
side examples of profanity, obscenity or on the face of the earth, says Randall and then again after the web ads had run.
nudity or all three at once. Rothenberg, the head of the Interactive Ad- Each time the online ads signi cantly
vertising Bureau (IAB). Another thing that boosted awareness. Mr Lynton says he is
Elusive click-throughs has attracted companies is the networks’ now convinced that social networks are
The sceptics have some evidence on their ability to target ads with laser-like preci- radically altering the marketing landscape.
side. Click-through rates on display ads at sion, thanks to the data they hold on their
sites such as Facebook are a small fraction users’ ages, gender, interests and so forth. Rock, baby
of those that Google commands for its Although there are still lingering concerns Another rm that has become convinced
highly targeted search ads. And although about brands appearing next to racy con- of that is Toyota, which last year worked
marketers love to promote their brands via tent, rms seem more willing to run this with MySpace to create a competition
their own (free) pages on social sites, some risk now that the networks’ advertising called Rock the Space in which bands
are wary of buying ads on them because proposition has become more compelling. were invited to send in demo tapes of their
of those abysmal click-through rates. We The other reason more money is head- music. Some 18,000 entries were received
spend the majority of our time engaging ing the networks’ way is that some adver- and MySpace’s users voted for the best
with people on these networks, not adver- tisers are seeing a great return on their in- tape, with a record contract as the prize for
tising on them, says Scott Monty, the head vestment. Michael Lynton, the boss of the winning band. Doug Frisbie, who over-
of Ford’s social-media activities. Although Sony Pictures Entertainment, a lm studio, sees social-media marketing for Toyota’s
user numbers were sharply up last year, says he was deeply sceptical about using American operations, says the promotion
the social-networking industry’s revenues social-networking sites for advertising. In- exceeded the company’s hopes for brand 1

9. The Economist January 30th 2010 A special report on social networking 7
2 promotion by a factor of several times. change, reported revenues of just over $1 big money can be made from selling make-
Both rms’ experience suggests that billion, with $720m coming from online believe items may seem bizarre. But the
people using social networks are more gaming and sales of items such as digital practice replicates the physical presents
likely to engage with brands than sceptics swords and other virtual goods. Many that people give to one another to cement
think. Mr Lynton also reckons that the net- Asian networks such as South Korea’s Cy- relationships in the real world. Although
works produce a powerful viral marketing world and Japan’s Mixi also mint money Asia remains by far the biggest market for
e ect because friends use them to tell one by selling users custom backgrounds and digital knick-knacks, Inside Network, a re-
another about things they have discov- other paraphernalia that allow them to search rm, has estimated that sales of vir-
ered. Marketers have long known that personalise their network pages. tual wares in America on many di erent
such recommendations are hugely impor- Inspired by this, rms elsewhere are kinds of websites reached $1 billion last
tant in purchase decisions (see chart 5). So- embracing elements of the Asian model. year and could grow to $1.6 billion in 2010.
cial networks are harnessing technology Hi5, which is based in America and has
to accelerate this process by, for example, 60m members around the world, has Plain or de luxe?
automatically alerting a person’s friends launched a number of games on its plat- Another business model that has proved
when he or she signs up to become the fan form and created its own virtual currency, lucrative involves charging users for pre-
of a particular brand or product on a site. called Hi5 coins, for use in them. Alex St mium services. The networks that have
The big question is whether all this will John, the rm’s chief technology o cer, been best at this have been the business-
translate into an advertising bonanza. says that gaming and advertising can easi- oriented kind. LinkedIn, for example, pro-
There is a pretty strong argument to be ly be combined by, for instance, persuad- vides a free basic service, but asks users to
made that social networks are worth more ing an advertiser to sponsor a currency pay a monthly subscription fee of up to
than they are being given credit for, says used by players. $500 for extras, such as being able to send a
Andrew Lipsman, an analyst at comScore. Ning is targeting gifts rather than games. larger number of introductory e-mails to
But he cautions that the advertising indus- In October it launched an initiative that al- other people on the site. The rm, which is
try may be slow to recognise the shift that lows people who have set up networks on said to have revenues of over $100m a year,
is taking place. In a bid to speed things up, its system to sell customised digital items also makes money by charging companies
Facebook has struck an alliance with Niel- to their members. These cost anything for online tools that help them track down
sen to create a series of benchmarks for from 50 cents to $10, and over 400,000 of talent. This freemium model plus a
measuring the impact of social-network them are now being exchanged every healthy dose of advertising from big
advertising on brands. Sheryl Sandberg, month, with Ning splitting the pro t equal- brands aiming to reach its a uent audi-
Facebook’s chief operating o cer, says this ly with its customers. This will add to the ence has helped the network to turn a pro-
will allow companies to get feedback on revenues that it makes from ad sales and t for several years running.
the e ectiveness of their campaigns much network-management fees. Even Face- Social networks have also bene ted
faster than before. book, with its focus on advertising, has a from search engines’ desire to get their
Facebook has also been experimenting virtual warehouse of birthday cakes, hands on more content. Twitter signed lu-
with new kinds of ads designed to draw champagne bottles and other goodies. crative deals with Google and Microsoft’s
people in, including some with embedded The beauty of this business for social Bing search service in October that allow
online polls or videos to which comments networks is that the cost of producing and both companies to include tweets from
can be added. So far it has not come up storing virtual inventory is minimal. More- Twitter’s database in their search results.
with a killer format, but that does not seem over, because these are closed markets, Thanks to these transactions the network
to be holding it back. The company does networks can x prices at levels that gener- is rumoured to have made a small pro t
not reveal numbers, but its revenues last ate fat margins. To some, the notion that last year, though it will not con rm this.
year are thought to have been at least This year it plans to start making more
$500m and quite possibly more, which money in two ways. The rst involves
In friends we trust 5
helped it to turn cash- ow positive in charging rms for services such as tools for
mid-2009. Against the backdrop of a world Global consumer trust in advertising, Q1 2009 analysing discussions on Twitter and for
% of respondents
economy in recession and a dire advertis- authenticated accounts that let people
ing market, that is quite an achievement. It Trust completely Trust somewhat know tweets they are receiving come from
also suggests that Facebook can do well us- 0 20 40 60 80 100 a genuine business. It is also hoping to pro-
ing a variety of di erent ad formats rather Friends’ t from advertising by serving up targeted
than a single, winning one. There doesn’t recommendations ads in the way Google does. Biz Stone, one
have to be one enormous, oh my God hit, Brand websites of the rm’s co-founders, reckons that
says the IAB’s Mr Rothenberg. Consumer forums Twitter’s fans will be receptive to these be-
Editorial content cause they already use the service to seek
Fun and gains Brand out information from others. They regular-
Nor does there have to be just one advertis- sponsorships ly share links to commercial sites and one
Television
ing-driven business model. In Asia several survey last year found that as people twit-
rms such as Japan’s GREE and China’s Newspapers tered, they mentioned speci c brands or
Tencent, which owns QQ, a service that in- Magazines products in 20% of their updates. That ex-
cludes a big online social network, are al- Radio plains why Twitter and other social net-
ready making healthy pro ts from sales of works have caught the attention of mil-
Billboards
games and virtual goods. In 2008 Tencent, lions of small businesses, as well as
Source: Nielsen
which is listed on the Hong Kong Stock Ex- thousands of big ones. 7

10. 8 A special report on social networking The Economist January 30th 2010
A peach of an opportunity
Small businesses are using networks to become bigger
H EY rst peaches of the season are
here. Come and get your peach pie
@10am. Simple tweets like that have
as Twitter and Facebook are putting cor-
porate tiddlers on a par with behemoths
such as Starbucks and Dell when it comes
spondent suggested that he contact China
BAK Battery, which produces a small,
plug-in battery for the iPhone. Impressed
helped Mission Pie, a small shop in San to broadcasting messages to a mass mar- with the product, Mr Van Ess told mem-
Francisco, drum up interest in its mouth- ket. They have also created what Steve bers of his online network about it and
watering array of sweet and savoury pies. Hasker of Nielsen calls the world’s big- was soon handling orders for them. After a
As well as twittering about its wares, the gest, fastest and most dynamic focus while he formed his own company,
store also alerts customers to poetry read- groups , which can be a boon to entrepre- 3GJUICE, to produce a plug-in unit for the
ings and other events it organises. Krystin neurs without fat research budgets. iPhone that incorporates the Chinese
Rubin, a co-owner of Mission Pie, says the Some small businesses are already us- rm’s battery.
business had just 150 or so followers for a ing social networks to generate new ideas. Mr Van Ess’s rm is tiny, but social net-
while after one of its bakers started send- After spending time on Twitter, employees works such as Facebook and MySpace
ing out tweets almost a year ago. Then that at Cordarounds.com, a small American have also served as launching pads for
number suddenly shot up to over 1,000. clothing company, noticed that many folk much bigger out ts. Among the largest of
Over the past few months business has twittering in their area were using bicycles these are companies such as Zynga, Play-
been very brisk and Ms Rubin reckons to get to work. So the rm produced a new sh and Playdom, whose popular online
Twitter deserves part of the credit. It has a line of trousers, dubbed bike-to-work games run on the big networks’ platforms.
sort of street credibility that’s not there pants , with built-in re ective materials Some of these games, such as Zynga’s
with traditional media, she says. that make wearers more visible to tra c FarmVille , have attracted millions of
Other companies have discovered the while cycling at night. And of course it players and produced mountains of mon-
same thing. Kogi BBQ, which has several used tweets to get the word out about its ey for their creators. Zynga says it has been
trucks serving Korean food in Los Angeles, new creations. pro table almost since it opened in 2007,
now has over 52,000 followers on Twitter Follow me on Twitter signs are ap- and last month the business attracted an
and uses the service to tell customers pearing on the doors and windows of investment of $180m from a bunch of
where they can nd its vans each day. small businesses in other countries too. A prominent nanciers convinced of its po-
Sprinkles, a cupcake bakery with stores all survey last year by O2, a mobile-phone op- tential. Many of the social-games compa-
over America and nearly 94,000 fans of its erator, found that some 17% of Britain’s nies are on a hiring binge, creating hun-
Facebook page, posts a password to that small businesses were using Twitter. Many dreds of new jobs at a time when the
page each day which can be redeemed for of the rms that responded said they were economy around them is in the doldrums.
a free cake by a certain number of visitors doing this to attract new customers. Some Their experience provides an insight into
to its shops. Such o ers can attract a lot of reckoned they had been able to save up to how social networks can help propel small
attention. A survey of 1,000 heavy users of £5,000 (over $8,000) a year by cutting out businesses to much bigger things.
social networks and other digital media other forms of marketing in favour of the Like most games, the ones produced by
conducted in August 2009 by Razor sh, an networking service. Zynga and its peers appeal to people’s nat-
advertising agency, found that 44% of ural competitive instincts. Leader boards
those following brands on Twitter said Charging for batteries and a host of other features allow players
they did so because of the exclusive deals The connections made possible by social to show o their status within a game to
the rms o ered to users. networks are helping to create new busi- their friends. But the games also encourage
As Kogi BBQ and Sprinkles show, social nesses as well as promote existing ones. lots of co-operation among players, who
networks are arguably having an even When Henk van Ess, a Dutch technology can build rapport by, say, sending virtual
greater impact on small businesses than consultant, posted a complaint about the gifts to each other or handing virtual cur-
on the big league. By giving entrepreneurs short lifespan of his iPhone’s battery on rency to new players when they join a
free access to their audience, services such LinkedIn a couple of years ago, one re- game. The best virtual goods have real 1

11. The Economist January 30th 2010 A special report on social networking 9
2 currency, says Mark Pincus, Zynga’s boss. This astonishing growth has been rm subsequently removed them. But
He reckons that the games have become so helped by the fact that social games are free such hiccups have not dented interest in
popular because they combine fun with to play. The companies make their money social gaming: last November Play sh was
the various ways to strengthen relation- by selling digital goods in the games, by snapped up by Electronic Arts, a big video-
ships that Facebook and other networks carrying advertising and by getting players game publisher that thinks the business is
have brought online. to sign up for marketing promotions. Sur- going to be huge. It may well be right. Thin-
prising though this may seem to some, vir- kEquity, an investment bank, reckons that
Better than the real thing tual goods such as swords, tractors and revenues in America from social games
Social games have also become extraordi- even digital boyfriends are much in de- could hit $2.2 billion by 2012, a big leap
narily popular because they cleverly ex- mand. After users of its Sorority Life from last year’s $375m.
ploit those relationships. Once someone game complained in an online forum that Admittedly this is an extreme example
has signed up for, say, Ma a Wars , anoth- the game lacked virtual men they could of the bene ts social networks can bring to
er Zynga invention, they are urged to invite date, Playdom quickly introduced some small businesses. Rewards for out ts such
their friends to join too. And players’ grue- last November. Over 10m of the boy- as Mission Pie will be far more modest. But
some successes in such games are regular- friends were promptly snapped up, with a if they were added up across an entire
ly posted to their personal page on Face- few players buying as many as 500 each. economy, they could have a signi cant ef-
book, which can be seen by all of their Some paid for their digital darlings with fect on growth. What a pity, then, that
friends. Thanks to such wheezes, online virtual credits won in the game, but others many small rms are reluctant to take the
games bene t from a powerful network ef- stumped up over $5 a time for their beaux. plunge into the social-networking world.
fect. Café World , which gives users the The rise of the social-gaming rms has A survey of 500 small businesses in Amer-
opportunity to run their own virtual res- not been without controversy. Last year ica conducted by Citibank last October
taurant, launched on Facebook at the end Zynga came under re from TechCrunch, a found that most of them had not used on-
of September and within a week had at- Silicon Valley blog, for allowing mislead- line networks at all because they thought
tracted a mind-boggling 10m players. ing marketing o ers to run on its site. The they would be a waste of time. 7
Yammering away at the o ce
A distraction or a bonus?
A N ASTONISHING amount of time is be-
ing wasted on investigating the
amount of time being wasted on social
the fuss over social networking sounds all
too familiar. Whenever a new and disrup-
tive technology appears, there is initially a
iPhones at the ready.
Moreover, as people become increas-
ingly used to sharing and collaborating
networks. Studies regularly claim that the backlash against it before it becomes outside the workplace, they are coming to
use of Twitter, Facebook and other such broadly accepted. Even a seemingly inno- expect rms to be more open and collabo-
services poses a threat to corporate wealth. cent application such as Microsoft’s Excel rative places too. Many companies are or-
One published last year by Morse, an IT spreadsheet was greeted with much scepti- ganised into strictly separate regional, pro-
company, estimated that personal use of cism because managers assumed workers duct-line and functional silos , making it
social networks during the working day would use it to make lists of their fantasy hard for people to share information be-
was costing the British economy almost football teams or their weekend shop- yond their immediate colleagues. And the
£1.4 billion ($2.3 billion) a year in lost pro- ping which is exactly what they did and rise of vast, globe-spanning corporate em-
ductivity. Another, by Nucleus Research, still do. But along the way, Excel has also pires with hundreds of thousands of em-
an American rm, concluded that if com- become an invaluable business tool. ployees has left many folk isolated in small
panies banned employees from using Fa- Social networks were not designed for work groups run by managers who care
cebook while at work, their productivity businesses as Excel was. Instead they are only about their particular efs. As a result,
would improve by 1.5%. part of a growing trend known as the con- e orts are duplicated and valuable infor-
This assumes that people would actual- sumerisation of IT. Thanks to companies mation ends up being hoarded, not shared.
ly work rather than nd some other way to such as Apple, Google and Facebook, peo-
pass the time they have to spare. In the ple now have access to communications I spy A-Space
same vein, perhaps companies should devices and web applications that are of- In the corporate world such hoarding leads
also ban water coolers and prohibit people ten far superior to those o ered by their to lost pro ts. In the world of intelligence it
sending e-mails to their friends. The as- employers. And thanks to cloud comput- can lead to lost lives. The recent unsuccess-
sumption that rms can block access to the ing, which allows all sorts of computing ful attempt by a terrorist to blow up an
networks altogether is also rather heroic. services to be delivered via the internet, American aircraft in ight has highlighted
Some employees now have web-enabled they can use these devices and applica- the need for better information-sharing
smart phones, so trying to stop them from tions pretty much wherever they like, in- among security agencies. To improve mat-
sur ng their favourite sites will be another cluding in o ces and factories. This trend ters, the intelligence community is devel-
waste of time. is accelerating as more digitally savvy oping a system called A-Space, a sort of
To veterans of the technology industry, youngsters enter the workforce with their Facebook for spies that holds pro les of 1

12. 10 A special report on social networking The Economist January 30th 2010
Social contracts The smart way to hire workers
W HEN it comes to online networking,
cyberspace often mimics the real
world. There are networks such as Face-
tools that networks provide. LinkedIn, for
example, is developing a service that ag-
gregates data it holds to show career paths
than traditional recruitment channels.
Mr Piskorski of the Harvard Business
School thinks professional networks have
book and MySpace that are mainly for so- for certain professions. So someone who been so successful because they o er a
cialising with friends, and there are others wants to become, say, head of software way for people to participate passively in
such as LinkedIn, France’s Viadeo and engineering at a large company in ten the job market yet still claim plausibly that
Germany’s Xing that concentrate on years’ time can see what sort of jobs have they are seeking out information to do
work-related matters. The sites aimed at led on to such roles for others. their current job better. Companies put up
professionals, although much smaller Online networks have attracted plenty with this, he says, because the bene t
than the ones for hanging out with of attention from corporate recruiters too. they get from better-informed workers
friends, are already having a big e ect on Olivier Fecherolle, the head of Viadeo’s more than o sets the cost of losing them if
labour markets. French operations, says that for an em- they are poached.
In many ways the world of commerce ployer the networks have several advan- All this makes labour markets more ef-
is a perfect place for a social network to tages over online job boards. One is that cient. By cutting out middlemen such as
ourish. Doing business, after all, boils people visit them frequently, so pro les headhunters, rms save money. And by
down to managing a complex web of rela- on the sites tend to be more up-to-date looking at rich online pro les of candi-
tionships with customers, suppliers and than those on job boards. Another bene- dates, they can cut the time it takes to get
others. Professional networks make it eas- t, he says, is that the networks’ rich pro- the right people into jobs. Network users,
ier for people to maintain such relation- les help recruiters get a good feel for a for their part, get what Reid Ho man, Lin-
ships and to forge new ones. LinkedIn, for candidate without having to delve into a kedIn’s chairman, calls an active sonar
instance, has over 500,000 groups some detailed curriculum vitae. system that publicises their skills to a
better than others on specialised sub- broad marketplace with minimal e ort
jects that people can join to share ideas Bargain hunting and collects the responses that ping back.
and make new contacts. But perhaps the biggest attraction is that Social networks have made the labour
Such connections may prove useful the networks help rms to cut search market more transparent in another way
later on: research has shown that the more costs. Don Cooper, a recruiter at Intel, reck- too. A survey by CareerBuilder.com of
distant members of people’s networks are ons that the chipmaker saves millions of about 2,700 executives in America last
often the best source of new job leads. dollars a year in fees by recruiting senior year found that 45% of them looked at job
Job-hunters can also use their networks to managers through LinkedIn rather than candidates’ social-network pages as part
gather intelligence about prospective em- using headhunters. US Cellular, a tele- of their research, and more than a third of
ployers and to solicit recommendations coms company, says it saved over $1m last those had unearthed information there
that strengthen their candidacies, and year by using a LinkedIn system that pro- that put them o hiring someone. Time to
they can bene t from some of the career duced good candidates for its jobs faster turn up those privacy settings?
2 analysts from various agencies and allows works such as Twitter to share informa- their sta to circulate freely.
them to contact one another and to share tion. The argument for using a system that This has generated interest in Enter-
large amounts of text, graphics, images allows the world to see what a rm’s em- prise 2.0 networks tailor-made for the cor-
and videos. ployees are up to is that it helps make face- porate world. These work in much the
Before a pilot of the system was less corporations seem more human in the same way as a Twitter or a Facebook, but
launched in 2008 it often took weeks, eyes of their customers. Networks such as keep information o the public web and
sometimes months, for spooks to track Twitter are also free and very easy to use, behind a corporate rewall. They have sev-
down relevant people to talk to at other which means people adopt them quickly. eral other advantages too. Many automati-
agencies. The intelligence community But most companies are deeply uncom- cally pull information from companies’
was a bunch of stove pipes, says Ahmad fortable with the notion of baring all to human-resources systems into people’s
Ishaq, A-Space’s project manager. Now the such a wide public. Among other things, pro les. Services such as IBM’s Lotus Con-
14,000 people with access to the secure they fret that employees might let slip con- nections and Salesforce.com’s Chatter can
system can easily and quickly get in touch dential data, that competitors will be also be easily integrated with other IT tools
with each other. alerted to forthcoming innovations and that workers use, so they are more likely to
Social networks are being used to break that the public networks will be hard to in- be adopted than public networks.
down internal barriers in the corporate tegrate with their internal IT systems. These corporate Facebooks can also
world too. A few companies, such as Zap- Firms in highly regulated industries such be tweaked to t rms’ speci c needs. Nic-
pos, an online retailer owned by Amazon, as pharmaceuticals and banking are espe- olas Rolland, who is helping to bring in an
encourage employees to use public net- cially wary of allowing information from online social network for the almost 1

13. The Economist January 30th 2010 A special report on social networking 11
2 90,000 employees of Danone, a global
food group based in France, says that the
company added invitation-only private
discussion groups after getting requests
from sta who wanted to share con den-
tial information. Danone, whose workers
are spread across more than 100 countries,
is testing its network in several locations
before making it more widely available.
Goodbye to silos
Although these are early days, companies
say such network initiatives are already
speeding up knowledge-sharing and inter-
nal communications. Samuel Driessen,
who is overseeing the introduction of
Yammer at Océ, a large printer company
based in the Netherlands, says the messag-
ing system has helped the rm spot where
work is in danger of being duplicated and
share information about sales prospects. of Yammer and other social media at Alca- that good ideas can emerge from any-
Danone’s Mr Rolland reckons its system tel-Lucent, a Franco-American telecoms where. This should be a reason for celebra-
has already led to smart operating prac- rm. Yet there are grounds for thinking the tion rather than a cause for suspicion. If
tices being shared more e ciently. bene ts they create are worth having. A you trust your employees, then you have
Marc Benio , the chief executive of Sa- study last year by IDC, a research rm, nothing to worry about when deploying a
lesforce.com, predicts that demand for cor- found that knowledge workers spend be- social network, says Eugene Lee, the chief
porate social-networking services will tween six and ten hours a week hunting executive of Socialtext, which provides so-
take o as managers realise that they now for information. By using social networks cial-media services to rms.
know more about strangers on Twitter and to nd data faster, employees can free up a The networks are also a great way to
Facebook than they do about the people in chunk of that time for other things, says capture knowledge and identify experts
their own organisation. Some analysts Caroline Dangson, an analyst at the rm. on di erent subjects within an organisa-
agree with him (see chart 6). Mr Benio Yet even if they can make a good busi- tion. Mr Driessen at Océ says that many
even thinks social computing could be the ness case for a network, some managers earlier knowledge-management systems
next big business for the IT industry after hesitate to introduce one because they fear were little more than boring collections of
cloud computing. Perhaps so, but social that sta might use it to broadcast political- documents. Social networks are a huge im-
networks must clear several hurdles before ly incorrect comments. Andrew McAfee, a provement over them because they com-
they can enter the corporate mainstream. professor at MIT who has seen many cor- bine content with commentary from peo-
The rst of these is the lingering doubt porate networks in action, thinks that this ple whose know-how might previously
about networks’ ability to deliver genuine concern is overblown. I nd it hard to be- not have been recognised. Suzanne Living-
bene ts. The biggest challenge most com- lieve that employees were waiting for so- ston, the head of IBM’s social-software op-
panies are facing is that the value proposi- cial networks to come around to be able to erations, says that rms can even create
tions for social networks are all soft, ex- post something inappropriate, he sco s. new, jointly owned social networks or
plains Greg Lowe, who champions the use He points out that because all comments splice existing ones together to share
can be traced to their authors, people are know-how with outsiders.
very careful about what they post. Some executives see another big bene-
Money talks 6
t of networking. A few of the systems on
Web 2.0 revenues by technology, $m A owering of ideas o er have analytical tools built into them
2009* 2013† A third hurdle is that bosses are worried that let managers track information such
0 200 400 600 800 about allowing informal groups of work- as which people are regularly in contact
ers to spring up that managers cannot con- with one another and what subjects they
Social
networking 1,997 trol. Yet this is precisely why the systems are discussing. This social business intelli-
RSS
are so valuable. Often new ideas and in- gence can then be used to, for example,
sights as well as warnings about potential identify people for a project team based on
Blogs threats come from informal contacts rath- their expertise and their links to others
er than from formal meetings. The trouble whose support will be needed to make the
Wikis
is that existing IT systems are geared to- project a success. But the data could also be
Mashups wards reinforcing separate silos rather used to make judgments about candidates
than building bridges between them. for a promotion or to spy on colleagues. All
Podcasting Services such as Yammer and Chatter this makes some people queasy. What
Widgets create a more open workplace by letting happens with personal data is a big issue
†Forecast
people see what others are working on not just within companies but for the big
Source: Forrester *Estimate
and encouraging sharing. The upshot is public networks too. 7

14. 12 A special report on social networking The Economist January 30th 2010
Privacy 2.0
Give a little, take a little
I F THERE is one thing that could halt the
ascent of social networks, it is the vexed
question of privacy. This is controversial
settings for younger people on social-net-
working sites are often more restrictive
than those for adults to ensure they are
because it goes right to the heart of the so- protected from unwanted attention.
cial-networking business model. In order Social networks deserve applause for
to attract users, sites need to o er ways for developing these ne-grained controls,
members to restrict the information about and for their e orts to educate youngsters
themselves that gets shared with a wider in the appropriate use of social-network-
public. Without e ective controls people ing sites. But their desire for pro t can put
would be reluctant to sign up. But if a site them on a collision course with privacy ac-
allows members to keep too much of their tivists, regulators and their users.
information private, there will be less traf- One bone of contention is social net-
c that can be turned into pro t through works’ reluctance to draw attention to
advertising and various other means, so their privacy statements. A study pub-
the network’s business will su er. lished last year by two researchers at Cam-
There is a tension here because these bridge University, Joseph Bonneau and Sö-
networking sites are based on the idea that ren Preibusch, looked at 45 networks and
people will share information about them- found that many of them buried their pri-
selves, says Amanda Lenhart of the Pew vacy statements in obscure corners of their
Institute for the Internet & American Life, a sites. Speculating about the reason for this,
non-pro t research group. If people stop the researchers thought it might be con- Earlier this month Mr Zuckerberg told
swapping content then the sites will fade cern about privacy salience : the worry an audience in California that he believed
away. There is some evidence that people that alerting people to privacy as a poten- social norms had shifted and that people
are starting to become more sophisticated tial issue will make them less inclined to had become willing to share information
about the way in which they manage their share things, even if robust privacy con- about themselves more widely. On this
data, which could have longer-term impli- trols are available. view, what Facebook did was simply a re-
cations for the networks’ growth. That matters, because networks are do- ection of a new social reality. But the
Research published last year by Pew ing their best to lock in users. Messrs Bon- rm’s critics argue that Facebook is trying
showed that some 60% of adults are re- neau and Preibusch found that none of the to drive change on privacy rather than re-
stricting access to their online pro les. In sites they looked at made it easy for people act to it.
an earlier study the institute had found to export their pro le data, friendship Some privacy groups have led a com-
that, contrary to received opinion, many links, photos and other material. The more plaint against Facebook to America’s Fed-
teenagers and young adults are also using content that a user produces, the more like- eral Trade Commission, arguing that the re-
privacy controls to restrict access to online ly he or she is to remain on a particular site cent changes to its privacy policies and
information about them. Nicole Ellison, a because moving becomes too much trou- settings violate federal law. The complaint
professor at Michigan State University ble. That explains why most sites like to notes that before Facebook’s latest move
who studies social networks, says that play up the bene ts of content-sharing the only data about individuals that were
over the past few years she has noticed and play down talk about privacy. publicly available were their names and
that her students have become steadily the regional or national network within
more cautious about whom they share in- We’d like to see more of you Facebook that they belonged to. Now far
formation with. Some of the tactics employed to encourage more information is being put on show
As it happens, the social networks have greater sharing are more blatant. Last automatically, though users can change
partly brought this on themselves. In order month Facebook caused a storm of protest their default privacy settings to restrict ac-
to o er a better service, many have created from privacy groups and users when it un- cess to some of it. Critics argue that Face-
extensive sets of privacy controls that al- veiled plans to simplify its privacy settings. book has loosened privacy protections in
low users to toggle between di erent lev- Critics welcomed some of the changes, in- order to increase tra c and to compete
els of protection to shield their online data. cluding one that allows users to specify with upstarts such as Twitter.
Hemanshu Nigam, MySpace’s chief securi- who can see an individual piece of con- There may well be more clashes with
ty o cer, says the site now o ers 65 di er- tent a level of detail not available before. privacy regulators and privacy groups.
ent features that people can use to deter- But privacy activists are deeply unhappy Facebook made a number of changes to its
mine what, if anything, can be seen by with the site’s decision to make more data privacy policy last year after Canada’s pri-
other users. Facebook also has a plethora from individuals’ Facebook pro les avail- vacy watchdog raised several concerns
of controls that can be adjusted to create able by default to anyone with access to with the rm. In particular, the watchdog
di erent levels of con dentiality. Default the internet. wanted Facebook to give members more 1

15. The Economist January 30th 2010 A special report on social networking 13
2 control over the way their information is out that companies engaged in so-called tion about themselves. But Mr Zuckerberg
used by apps, which the rm agreed to do. behavioural advertising are tracking in- and his colleagues clearly believe that peo-
Privacy bodies in Europe are also looking dividuals’ activities on the web without ple are happy to do so.
into social networks, hoping to establish their knowledge, whereas Facebook seeks Twitter’s Mr Stone also sees a longer-
pan-European guidelines. its members’ explicit permission when term trend towards greater openness, and
Sharing information with apps devel- they sign up to the service to let it use their claims that his service’s users are quite
opers is an especially sensitive issue. If se- data for ad-targeting purposes. He also happy to share more information about
vere restrictions are placed on networks’ stresses that the company provides adver- themselves. The network has recently
ability to pass on data, both they and the tisers with data only in aggregated form so changed its own terms of service to give it
developers could end up making less mon- that individuals’ personal information is greater leeway to add data about users’
ey than envisaged. Advertising is another not divulged to anyone. physical location to its tra c. Mr Stone
touchy subject. Je rey Chester of the Cen- says this is critical because the next big
tre for Digital Democracy, a privacy group, How much is a free lunch? wave of social networking will revolve
sees social networks as part of a broader Most people who use Facebook and other around mobile phones and the places that
set of companies that are trying to track in- social networks seem prepared to accept people take them to. A new crop of net-
dividuals’ behaviour online to gather data the idea of targeted advertising as the price working rms has already sprung up to
that can be used by marketers for precisely of getting free access to the service. It is less capitalise on the opportunities o ered by
targeted advertising. clear whether they are prepared to go mobile phones. That opens up the pros-
Elliot Schrage, Facebook’s head of pub- along with Facebook’s attempts to per- pect of even broader changes in the social-
lic policy, sees things di erently. He points suade them to share ever more informa- networking landscape. 7
Towards a socialised state
The joy of unlimited communication
W HAT will the future of social net-
working look like? Imagine this: your
digital video recorder automatically copies
on your way. And this: as you are buying a
pair of running shoes that you think one of
your friends might be interested in, you
teapot will soon be twittering about what
you had for breakfast. Some of the ideas
outlined above may sound far-fetched, but
a television show that several of your can send a picture to their network page a service such as Facebook Connect, which
friends were talking about on a social net- with a couple of clicks on a keypad next to already lets people export their social
work before the show went on air. Or this: the checkout counter. graph of online relationships to other web-
you get into your car, switch on its naviga- Networking types like to talk about the enabled gizmos, suggests they are not com-
tion system and ask it to guide you to a idea that there is a pervasive social ele- pletely outlandish. Everything from cars to
friend’s house. As you pull out of the drive- ment in all of the things people interact cookers could ultimately have social con-
way, the network to which you both be- with. Listen to them long enough and you nectivity embedded in it.
long automatically alerts her that you are come away with the impression that your But when it comes to helping social net-
works achieve ubiquity, none of these
things will be remotely as important as the
mobile phone. Using a web-enabled
phone to post status updates and send
messages is still a niche activity in many
countries, but it will rapidly become a
mainstream one as mobile-broadband ser-
vices overtake xed-line ones in a few
years’ time. One estimate by eMarketer
suggests that just over 600m people will
use their phones to tap into social net-
works by 2013, a more-than-fourfold in-
crease on last year’s 140m.
Dial-a-pal
This shift has big implications. For a start,
mobile phones in emerging markets or
devices such as cheap netbooks linked to
the internet via mobile networks will
open up a brand new audience whose use
of social sites has so far been hampered by
a frustrating lack of fast, PC-based internet 1

16. 14 A special report on social networking The Economist January 30th 2010
2 connections. Companies such as Sembuse The ultimate goal, he wrote, was to come
On the move 7
in Kenya, which bills itself as east Africa’s up with something that, rst and foremost,
rst mobile social network, and South Af- Mixi’s average monthly page views, m would make it easier for people to collabo-
rica’s Mxit are already gearing up to con- Mobile PC rate with one another.
nect millions more people to one another This special report has argued that so-
16
through their mobile phones, providing a cial networks have already done much to
big llip to the amount of information- 12
achieve that goal. They have created
sharing going on around the world. trusted online venues where people can
The rise of mobile-phone-based net- 8 meet up using their real identities. They
working will have an impact on rich- have provided rms with new ways to
world markets too. Thanks to fast and rela- 4 reach their customers and those who in u-
tively cheap mobile broadband services, ence them. They have reduced friction in
phones have already become the device of 0 the labour market by allowing employers
choice for accessing some sites in Asia. Shi- Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 and prospective employees to connect
geya Kawagishi, an executive at Mixi, one 2006 07 08 09 more easily than ever before. And they
Sources: Company reports; Morgan Stanley
of Japan’s largest social networks with 18m have speeded up the ow of information
members, says the vast majority of its traf- within companies.
c now comes from phone-toting custom- tential to change the world, though we All of these are impressive achieve-
ers who check in to get updates four or ve have a long way to go. ments. But arguably the most important
times a day (see chart 7). Facebook, which Much the same sort of thing was said contribution that the sites have made is to
has some 65m mobile users, says they are about the internet when it rst emerged. o er a free and immensely powerful set of
almost half as active again on the site as But it was also met with a great deal of communication and collaboration tools to
other folk. scepticism by those who thought the web everyone on Earth who has access to a
could never be used to make money, and broadband internet connection. This de-
On location from bosses who assumed that workers mocratisation of technology is driving the
This trend towards mobile usage is fuelling would use it simply to watch pornography socialisation of the web and fundamental-
speculation that the next big thing will be and play online poker. The sceptics were ly changing the way that people interact
geo-networking apps, which use virtual astonished when it went on to produce with one another, as well as with business-
data to broker real-world encounters. corporate powerhouses such as Amazon es and governments.
These apps encourage the serendipity that and Google, and provided businesses with It has also made it easy for anyone to
Twitter’s Mr Stone talks about by allowing remarkable new tools for boosting produc- form a globe-spanning discussion group of
people to use their mobiles to signal where tivity and generating fresh ideas. their own with just a few clicks of a mouse.
they are to friends who may be nearby. The parallels with social networks are Not so long ago that would have been the
Several start-ups such as Foursquare and striking. That should come as no surprise, preserve of an elite group of companies
Gowalla are building businesses around because those networks too are creatures and institutions which had the necessary
this idea and Twitter plans to do so too. of the internet and the ultimate expression nancial and technical clout to perform
Asking people to add their whereabouts to of what its founding father, Sir Tim Ber- such feats. Now, thanks to the technology
their tweets, the rm hopes, will enable it ners-Lee, wanted it to be. In his book created by Facebook and its peers, millions
to use these data to direct advertising and Weaving the Web Sir Tim explained that of these conversations can take place si-
other services at people as they move from the internet was always meant to be more multaneously with the greatest of ease.
place to place. of a social creation than a technical one. The world is better o for it. 7
To some, the idea of a technology that
can arrange chance meetings with their
O er to readers Future special reports
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people who run social networks, location- Customisation options on corporate orders of 100
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The networks’ founders seem to have The Rights and Syndication Department
an almost Utopian belief in the bene ts 26 Red Lion Square
that their creations will deliver. Facebook’s London WC1R 4HQ
Tel +44 (0)20 7576 8148
Mr Zuckerberg, for example, describes the Fax +44 (0)20 7576 8492
greater openness he believes his rm and e-mail: rights@economist.com
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is something important that has the po-