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Why did Google pay $1.65 billion
for YouTube? Did they overpay or did they really get a bargain? Now
what about Facebook. Is it really worth $2 billion? Did News Corp.
get a bargain on MySpace? It's not so much about the price. It's
about controlling the flow of traffic, and harnessing the subtle
power of word of mouth.
The relationship between social networks, search engines, and blogs
mirrors what we already know about the word of mouth function in the
real world, except it is much more efficient in cyberspace. The way
people bounce from home to work to lunch with friends to dinner with
family and on to the mall is a behavior replicated online. Jointly,
an entire system of relationships is a system of influence that directly
impacts consumer behavior.
Online social network yield power. The next generation of Internet users
will embrace social networks the way the present generation has embraced
search. Combined, the two magnify their ecommerce power exponentially.
Beyond the current hype surrounding the prices Google and News Corp. are
willing to pay for these networks should be recognition of that power, as
well as careful attention paid to who owns them.
Search is already a market cornered and MySpace is the early leader for that
prize in social networking. But watch out for Second Life, World of Warcraft,
EverQuest and other more interactive otherworlds as they evolve. The addictive
quality of these sites is compelling enough, but when the numbers start coming
in as to their impact on related sales, people will begin to take notice.
In wars, there is always an economic motivation. In these mega purchases you
also should seek the economic motivation. Let's use mothers as a case study.
Did you know that North American mothers represent a $1.7 trillion market?
Moms account for 55 percent of consumer electronic spending; 51 percent of
food spending; 49 percent of health and beauty spending; 48 percent of home
furnishings spending; and 47 percent of apparel spending.
That's a very powerful grouping. And 95 percent of them are online at least
once a day - 85 percent of them clicking on an advertisement - 86 percent of
them buying something. And only 20 percent of them say that advertisers really
know how to connect with them.
Market research shows that moms don't really care what celebrities are selling,
though celebrity endorsement has been a staple of advertising since the
beginning. Part of this, you could say is due to a concept called
"demystification," which applies to political leaders too.
Consumers know celebrities are paid handsomely to recommend a product and have
learned not to trust them. They ultimately turn back to those they trust before
buying anything. Sixty-seven percent said they'd rather get information from
a peer rather than a celebrity.
This phenomenon is mirrored online. Blogebrity Robert Scoble expressed a desire
on his blog that some algorithmic genius develop a measure of engagement, or
likeability, to better represent the impact of bloggers. He speaks from
personal experience to illustrate the power of the online relationship:
I've compared notes with several bloggers and journalists and when the
Register links to us we get almost no traffic. But they claim to have
millions of readers. So, if millions of people are hanging out there but no
one is willing to click a link, that means their audience has low engagement.
The Register is among the lowest that I can see. Compare that to Digg. How many
people hang out there every day? Maybe a million, but probably less. Yet if you
get linked to from Digg you'll see 30,000 to 60,000 people show up. And these
people don't just read. They get involved. I can tell when Digg links to me
cause the comments for that post go up too.
A friend of the Scobleizer concurred. Buzz Bruggeman, CEO of Active Words,
received 32 whole visits from USA Today, but 400 upon the recommendation of
Scoble. People trust Scoble more, most likely because of the relationship he
has with his readers.
So how are moms, bloggers, social networks, search, and ecommerce all
interwoven? There is an emerging pattern that shows online journeys begin
with social networks or search, move on to visiting blogger friends, who
direct them to good places to spend money. Bloggers blog, tell their blogger
friends about it, all of whom have friends or visitors that like to email
instead of blog.
In the UK, the market share of blog traffic is driven evenly by social networks
and search, according to Hitwise. Over 25 percent of blog visits in the UK
originated from social networks or chat rooms. Search engines sent 22 percent
of that traffic. But what was more interesting is where British consumers
were going after blogs.
Over six percent of those leaving blogs head off to shopping and classified
sites. The majority repeat the cycle by going back to search and social
networks, while others are trickling over to other blogs, to their email
accounts, or to news and media sites.
That's a lot of opportunity to reach people along the way. Like in the outside
world, the most important part of having an online business becomes the
business location, and then relying on word of mouth.
In the US, Hitwise says those numbers are slightly different. Net communities
and chat drive nearly 60 percent of blog traffic, followed by search engines
at 9.5 percent, and email with 8.4 percent. Where people go after that is more
evenly split, first among social networks (17%), entertainment sites (15%),
email (11%) and lifestyle sites (9.8%), and then among search engines (6.2%),
news sites (6.1%), blogs (5.9%), photography sites (5.2%), portals (4.5%),
and shopping sites (4%).
It's easy to get lost in those numbers, but the most important thing to
remember is that people leave blogs and, often upon the recommendation of a
trusted blogger, go to places where money is spent or products are considered.
What you should really pay attention to then, is how the big players understand
this traffic flow situation as well as they understand the power of the peer.
Did Google really overpay for YouTube? Is Facebook really worth $2 billion?
Did News Corp. get a steal on MySpace? Only time will tell...