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