Parsing reality from the hype: Mobile social networking on the rise, but just how much is hard to say

You know that contest where a person stands in a glass booth and tries to grab dollar bills as they fly around? That’s sort of like the mobile social networking space. Except there are dozens of players. And nobody knows how much money is in the air.
The number of social networks in wireless seems to increase by the day, depending on the definition of the term. Outfits expanding beyond the Internet (MySpace, Facebook, Bebo) are elbowing their way in against a host of players from those specializing in mobile-centric profile-based services (MocoSpace, Peperoniti) to those who focus on chat (Jumbuck, AirG), blogging (Rabble), contests (Tapatap, Crush or Flush), location (Loopt, Useful Networks, LocaModa) and photo- and video-sharing (FunMobility, Juice Wireless). Not to mention a host of others, including communities focused on video, music, games and other types of content.
And while traffic is nearly impossible for outsiders to quantify, it appears that many of the players are getting some impressive attention. Online giants are leveraging their brands to gain deck space and attract users, while Nokia Corp.’s Mosh – a newcomer that has yet to move beyond beta – has reportedly notched as many as 15 million unique visitors. Itsmy.com, European mobile community operated by Gofresh, recently passed the 1 million-user mark – doubling its user base since last July.
Pie in the sky
Analysts say that kind of uptake will only accelerate in the coming years. Pyramid Research predicts 950 million mobile users – nearly one-fifth of all wireless consumers – will be accessing at least one social networking site via their handheld by 2012. Informa Telecoms & Media recently said that revenues from mobile communities “in the most conservative scenario” will climb to $28 billion in 2012, perhaps reaching $52 billion by that time.
So how much cash are all those services and all those users generating today?
“I don’t know of any (mobile-only player) who’s making any real money,” Frank Dickson, co-founder and chief research officer of MultiMedia Intelligence, said of the mobile players. “You’ve got some of those people who are on the broadband side like MySpace and Facebook who are probably making some decent money in mobile, people who are extending their broadband business into mobile.”
Depth vs. breadth
One of the biggest problems, of course, is the fact that social networking companies have an overwhelming amount of inventory to sell. Unlike, say, ESPN, whose wireless Web site receives a ton of traffic but has a relatively limited number of pages, social networking sites can have millions of pages, most of which see few visitors. So while they may deliver an ad impression with every page-load, many of those marketing messages are performance ads – the kind that generate revenue only when a user clicks on them to get directed to a landing page or initiate a phone call to the advertiser. High-traffic sites, on the other hand, not only enjoy better click-through rates, they’re more likely to sell CPM ads – “cost per thousand” banners or other come-ons that generate revenue based solely on the number of eyeballs directed to the page.
Worse, many big brands are hesitant to buy ad inventory on typical networking sites, where they have no real control over the surrounding content. More than a half-dozen high-profile British companies made headlines last year when they withdrew advertising from Facebook after their ads were seen on pages promoting the far-right British National Party.
“When you look at the premiere brands, they spend an awful lot of money making sure the branding presented reflects the values of their brand,” Dickson said. “You need to guarantee me that my brand is going to be placed next to content that will be representative. It’s going to be very difficult (for advertisers) to control.”
Managing the madness
Which is why a handful of analysts look at the space with a raised eyebrow. While most market research firms offer sky-high forecasts for mobile social networking revenues – and as venture capitalists throw money at mobile social startups – a few skeptics have tried to quell the hype. Analysis Research in February boldly predicted that while communities may continue to attract eyeballs, they won’t generate enough revenue through ads alone to make for a sustainable business model.
“Most players in Western Europe and the USA have adopted the advertising-driven model, but advertising is unlikely to provide sufficient revenue to make mobile social networking profitable – at least in the short-to-medium term,” Analysis Research’s Alexandra Rehak wrote. “The amount of advertising spend that is directed towards media and entertainment services overall is limited. Even in the relatively mature mobile markets of Japan and South Korea, mobile advertising spend accounts for only a fraction of that for online advertising.”
Adapt and adjust
Some community operators are looking beyond simple banners and text ads, opting instead to deploy more innovative campaigns. Crush or Flush, a community from the Seattle-based startup IceBreaker, allows advertisers to create profiles of their wares, encouraging members to approve (crush) or reject (flush) brands just as they would fellow members. Voters who give a thumbs-up are invited to click a link to interact with the company. Buzzd, a New York firm that recently raised an undisclosed sum in a Series A funding round, encourages members to buy friends drinks of Hornitos, an advertiser. Codes are delivered via text message and can be redeemed at bars in New York, Los Angeles, Chicago and San Francisco.
But while there’s certainly a place for such creativity, serious revenues in the mobile social advertising space will hinge on targeted campaigns that can be efficiently deployed and accurately measured. Because most phones can’t accept cookies, advertisers are desperate for systems that allow them to segment users beyond just gender and age, giving them the ability to choose ads based on more granular information. And the industry craves an analytics system that can provide visibility across the entire scope of mobile instead of through a single operator or mobile ad agency.
A host of players are helping to bring those kinds of solutions to market. Whether many of today’s mobile social communities will be around to leverage them, though, is unclear.
“In the mobile world, the industry has not achieved fine-tuned demographic targeting to the user level,” said Jason Spero, AdMob’s VP of marketing. “AdMob and others are just starting to reach scale with demographic information that’s passed to us (from publishers) for targeting. What’s fun about mobile is that the evolution gets truncated, gets accelerated. We’re on the brink of leveraging behavioral and contextual information.”