The real deal about virtual networking

THE DAEDALUS COLUMN: TECHNOLOGICAL TRIUMPHS AND CHALLENGES
The real deal about virtual networking
Andy Ho, Straits Times 5 Apr 08;

THE Malaysian government acknowledges that its uninspired showing in the recent elections stemmed, in part, from its inattention to social media, like blogs and YouTube, which the opposition used effectively. Mr Barack Obama's presidential bid in the United States continues to ride high on that media too.

Compared to a decade ago, individual end-users are now actively collaborating to create content, share information and form communities using blogs, wikis and social networking sites (SNS). Dubbed Web 2.0, the Web is now more social.

Blogs are old hat while Wikipedia has made wikis well-known. SNS are slightly less familiar. Unlike search engines (dominated by Google) and video-sharing (by YouTube), different forms of SNS rule in different regions. The reason is that people won't move to a new SNS unless their existing networks of friends also follow, which would be unusual.

In the US, Facebook and MySpace are the most popular SNS. Friendster rules in Singapore and elsewhere in the region, except Thailand where Hi-5 is loved. Orkut dominates the Indian subcontinent, QQ is king in China, mixi in Japan and Cyworld in South Korea.

In Japan, 70 per cent of mixi users access it at least once every three days and stay logged on for at least four hours each time. Cyworld is an intimate part of daily life for 90 per cent of South Koreans aged between 20 and 30.

This technology has become entwined with real life because it allows friends to communicate using text, photo, voice, music and video. Instant messaging and blogging can be embedded in it too and a few SNS are supported on cellphones.

The popularity of SNS was first attributed to its enabling people to form and maintain ties. After all, the first to take off in the US, Friendster, was a dating service. But when its numbers grew too large for its servers to support, Friendster began losing members. Then it began imposing onerous conditions on its users, which affected indie rock bands the most.

So these musicians and their fans migrated over to MySpace, which began to grow exponentially in 2004. Unlike Friendster, MySpace gave users the freedom to personalise their profiles and pages. But it attracted little media attention until July 2005 when News Corporation acquired it for US$580 million (S$800 million).

Friendster did not keep its eye on the ball. An SNS must be user-centric. The Web 2.0 ethos insists on common folks being able to collaborate openly, freely and democratically to get things done.

Thus, a Stanford University law professor started a wiki recently to enable anonymous individuals to collaborate in writing a new law to clean up US election campaign financing. Collaborators will then try to leverage the wiki to collectively pressure their legislators to pass the law.

Be that as it may, the rhetoric of openness, democracy and 'wiki-government' tends to obscure the reality of serious business interests behind social media. Economic value lies in the data inherent in all our SNS profiles and interactions - the gossip and small talk as well as the serious discussions and disputations.

Business is busy mining that data to extract information about consumers that has largely evaded, till now, direct capture. Our mundane preferences, quotidian choices, trite wants and pet peeves - all can now be mined.

I think that is partly why Asia's richest tycoon Li Ka-shing has ponied up US$120 million for a stake in loss-making Facebook. Microsoft's stake is twice as large, yet neither it nor Mr Li has a seat on the board. Experts value in-the-red Facebook at US$15 billion and astute capitalists seem to agree.

Though it lost US$50 million last year, Facebook is hoping to make money from 'social ads' targeted at individuals based on what is known about them from the friends they keep and what they say about particular products and brands. Such information can make possible automated news feeds, based on people's likes and dislikes, to be channelled directly to them.

By contrast, some SNS in Asia are already profitable and, interestingly, not mainly from ads. This is a little-reported fact in the West, says Mr Benjamin Joffe who heads Plus Eight Star, a Beijing-based consultancy. He notes that QQ has 270 million active accounts in China while Cyworld has 20 million active users in Korea. By comparison, Facebook had 70 million users as of February this year.

Last year, QQ's profits were US$224 million, of which 13 per cent came from ads and 65 per cent from virtual goods. Cyworld made an estimated profit of US$100 million last year, mainly from virtual goods - virtual pets, cars, furniture, clothes or bling, casual games, and so on.

The Cyworld economy runs on a virtual currency that you buy with real money. Because virtual items cost about one US cent each, people tend to use their virtual money freely and the innumerable micro-transactions accumulate into huge profits. (Limited-edition virtual items cost more but you could buy them and 'flip' them for real monetary gains when demand for them goes up.)

If we understood why people spend real money on virtual goods, we would understand why SNS are so addictive and thus powerful. Buying virtual gifts, say, is really just buying a service. A real man actually buys and sends the virtual gift to a real woman he might fancy, who actually receives it. She can then preen and show it off to her network.

Studies show the same neurons fire in the brain and people experience the same pleasure whether real or virtual flowers are received.

But why would the real man spend real money on make-believe gifts? Here's why: He may not have 10 hours to spend trying to win virtual widgets in an online game hosted on the SNS that he can then gift to a woman. But he can afford $10 to buy them from the online shop.

Still, $10 for a figment of the imagination? A $10 cinema ticket might give the man two hours of viewing pleasure. But a $10 virtual bouquet does enable him to let a woman know he has the hots for her.

So people buy virtual gifts, people like receiving them and they do enjoy letting their friends know what good things are happening to them. Thus SNS may be popular not so much because one can make new friends through them but more because one can put one's social networks on public display.

Users are not so much networking with one another as they are showing off to one another - a pleasurable activity in itself. The emotional connectedness and social capital created in these virtual worlds can be real.

Social media will become a more taken-for-granted backdrop in our lives as Web 2.0 surrounds us at home, in the office and on the go with mobile broadband. The virtual ties they create will become as much a part of our lives as real-world friendships. After all, the ties may be virtual but the people so tied are real.

This being so, business - and politics - might want to scrutinise social media more closely.