http://www.telegraph.co.uk/finance/n...st-crisis.html
Dozens of social networking companies could fail next year as digital advertising slows and a new type of dotcom bubble threatens to burst, according to research from consultants Deloitte
Surviving websites may be forced to supplement their revenue with pay-subscriptions, selling members' data or extra financing, the researchers said.
The gloomy forecast comes as growth predictions for digital advertising have halved from 17.2pc to 7.2pc for next year, according to eMarketer.
The Deloitte research shows that as revenue declines, the cost of storing electronic data has soared to more than $100m (£68m) a year for larger sites, as users increasingly want to upload memory-hungry photos and videos.
"The book value of some social networks may be written down and some companies may fail altogether if funding dries up," said Paul Lee, Deloitte director of research for technology and telecommunications. "Average revenue per user for some of the largest new media sites is measured in just pennies per month, not pounds.
"This compares with a typical average revenue per user of tens of dollars for a cable subscriber, a regular newspaper reader or a movie fan."
Analysts estimate that there are more than 1,000 social networking sites on the internet, with 100 big players hosting profiles for 22pc of UK internet users. The best known, including MySpace, LinkedIn, Twitter and Facebook, are likely to be more resilient in the face of the advertising slowdown. However, many of the most popular social networks, such as Facebook and Twitter, do not yet generate large profits.
"Neither [Facebook or Twitter] has yet demonstrated that it can make money on a scale that matches its number of users," said Madan Sheina, an analyst at Ovum. "Twitter has yet to sketch out plans to
monetise its blogging site. Revenue has always been an issue for Facebook."
Facebook was valued at $15bn (£10.2bn) when Microsoft took a $240m minority stake in October last year. "With the economy spiralling into a downturn that figure might seem to be exaggerated right now," Mr Sheina said.
Facebook founder Mark Zuckerberg has stressed that his focus is on growth rather than making money for another couple of years.
There are, however, signs that the company is feeling the strain of the downturn, as it recently cancelled a plan to allow its employees to sell off shares early on account of the economic climate.
Dozens of social networking companies could fail next year as digital advertising slows and a new type of dotcom bubble threatens to burst, according to research from consultants Deloitte
Surviving websites may be forced to supplement their revenue with pay-subscriptions, selling members' data or extra financing, the researchers said.
The gloomy forecast comes as growth predictions for digital advertising have halved from 17.2pc to 7.2pc for next year, according to eMarketer.
The Deloitte research shows that as revenue declines, the cost of storing electronic data has soared to more than $100m (£68m) a year for larger sites, as users increasingly want to upload memory-hungry photos and videos.
"The book value of some social networks may be written down and some companies may fail altogether if funding dries up," said Paul Lee, Deloitte director of research for technology and telecommunications. "Average revenue per user for some of the largest new media sites is measured in just pennies per month, not pounds.
"This compares with a typical average revenue per user of tens of dollars for a cable subscriber, a regular newspaper reader or a movie fan."
Analysts estimate that there are more than 1,000 social networking sites on the internet, with 100 big players hosting profiles for 22pc of UK internet users. The best known, including MySpace, LinkedIn, Twitter and Facebook, are likely to be more resilient in the face of the advertising slowdown. However, many of the most popular social networks, such as Facebook and Twitter, do not yet generate large profits.
"Neither [Facebook or Twitter] has yet demonstrated that it can make money on a scale that matches its number of users," said Madan Sheina, an analyst at Ovum. "Twitter has yet to sketch out plans to
monetise its blogging site. Revenue has always been an issue for Facebook."
Facebook was valued at $15bn (£10.2bn) when Microsoft took a $240m minority stake in October last year. "With the economy spiralling into a downturn that figure might seem to be exaggerated right now," Mr Sheina said.
Facebook founder Mark Zuckerberg has stressed that his focus is on growth rather than making money for another couple of years.
There are, however, signs that the company is feeling the strain of the downturn, as it recently cancelled a plan to allow its employees to sell off shares early on account of the economic climate.
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