The Social Network Rush

Cecil is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

There seems to be a social network rush going on, fairly similar to the gold rush experienced in California many years ago. A large number of companies are moving in to corner the social network market or create their own social network. This is a slightly confusing move, if I am to be perfectly honest, but let’s take a look at some networks and how they may or may not fare, and what it means for their holding companies. 

Facebook

Facebook (NASDAQ: FB) is the most prominent social networking site on the market. You always hear all about how Facebook lost most of its value ever since it got itself listed on the stock exchange. This is primarily because the shares were initially sold at a premium, despite the fact that the company’s earnings were pretty weak and their modes of revenue weren’t exactly diversified.

In the recent past, Facebook has made some positive noises regarding the transition to mobile, which, as I have mentioned earlier, is an essential ingredient for any social network to become a success. This is fairly good news for investors who already hold shares of the social networking giant, but it also serves as a catalyst for people to go out and buy. I would have expected people to wait until the company declares its quarterly results (which is coming up) before purchasing. The numbers would have given us a good insight into whether they can perform or not.

Socl

Microsoft (NASDAQ: MSFT) recently opened the doors to the beta version of its own social networking site to everybody. Previously, usage of the site was limited to employees of Microsoft and selected invited students.  The scroll goes down forever, and thus ensures you waste enough time on the site, and it also has a fairly simple login that allows users to easily sign up and post whatever content they would put on a social networking site. The site feels a bit more like Pinterest than Facebook, to be perfectly honest.

This seems like another effort by Microsoft to enter a market a little too late. Bing was late, their entry into mobile was late, and now this. The Xbox was really the only product that Microsoft launched on time!

Social Networking isn’t a market that guarantees returns in the short term. It takes time to build a network like this and bring it to the number of users Facebook has. After this, there is a possibility to monetize the network through advertising revenue. Google has been struggling to monetize the users who take to Google Plus. In terms of number of users, Facebook is still pretty much king, thereby increasing the chance that advertisers will use that platform to showcase their products as opposed to these newcomers.

Sorry Microsoft, you caught this ship a little too late.

Qyuki

Qyuki is a social network that is based in India, and has two big names in the entertainment industry as investors– Shekhar Kapur, the director, and AR Rahman, the musician. CISCO (NASDAQ: CSCO) is the only venture investor in the company, investing Rs 27 crore in the company for a 17% stake.

The UN seems determined to structure the internet into a collection of national networks, which will prove a hurdle for companies like Facebook to overcome if they want to grow internationally. The social network is also not a traditional social network in the sense that Facebook or even Google Plus is. Qyuki, which was set up last year, will allow the co-creation of creative content. For example, lyrics could be posted by one user, another could score the music, and a third could be a publisher who packages it and takes it to market. The technology platform will itself be built in such a way that the content can be distributed through any device. The content posted on the site will be moderated by experts in different fields and can provide a platform for collaboration amongst different creative persons.

Conclusion

Like I said before, entering the social network market at this time is a little fool-hardy. Nobody is quite sure how these sites or companies are expected to make money out of these ventures, and advertising seems to be the only viable option at this moment. If this is the only method for monetizing, unless users are willing to pay for premium accounts (such as with LinkedIn), Facebook will dominate the space, thanks to its head start and the number of users on the site. However, there are other challenges that these sites will face, such as determined governments that seek to regulate the type of content posted on social networks. With regards to Facebook specifically, I’d wait to see until the results come out next quarter before I plan my next move. 


ceciljohn2002 has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and Microsoft and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Cisco Systems, Facebook, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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