Word of mouth is arguably the most powerful driver of local transactions. Whether its a movie recommendation, a hair salon, a preschool or a pediatrician, the recommendations and referrals of trusted friends and colleagues are many times more influential in our decision making than any advertising campaign, no matter how pervasive, costly or clever. Thats why the rise of online communities and social networking is so interesting and potentially important.
Some of the novelty and hype surrounding social networking sites, such as Friendster, LinkedIn, ZeroDegrees and Tribe, have faded as more serious questions about how they will sustain themselves have emerged. Indeed, a frequent reaction to these sites is, Thats interesting, but how are they going to make money? But it would be wrong, on that basis, simply to dismiss social networking sites or their potential influence on other online business models.
As consumers have increasingly adopted the Internet and some of the traditional, real-world social networks have frayed or disappeared, people are turning to online communities to find doctors and babysitters, to buy and sell things such as cars and washing machines, and to share reviews and recommendations for restaurants all within the universe of a trusted community. Local community site Craigslist is one successful and prominent example of this phenomenon.
Accordingly, many social networks are becoming more locally focused. Tribe, which is modeled on Craigslist, has become a network of city-centric local classified marketplaces. In addition, a handful of new companies, including Judys Book, Insider Pages, Yelp and PremierGuide, have married social networking functionality to the online directory model. InterActiveCorps (IACs), Evite has become a social network built around the local events and entertainment marketplace. And many established sites and companies are adding community as a way of promoting user loyalty or otherwise adding value to existing applications. AOL, Yahoo!, Lycos and Google all have social networks or initiatives.
Most of these networks will ultimately fail as stand-alone businesses. A few may survive and others will be acquired by larger companies interested in incorporating their functionality.
This report, however, is not about evaluating the viability of the full range of social networks or potential business models. It is focused primarily on social networking or community sites seeking to create local marketplaces and existing business models directory and classifieds sites integrating community features to improve and enhance the consumer experience.
In some sense, social networking is a natural expression or extension of offline word-of-mouth behavior. This phenomenon is alternatively discussed in the context of user-generated content. But whatever label you want to affix, online community and social networking behaviors are important and must be carefully considered. In fact, The Kelsey Group (TKG) believes that social networking will largely disappear as a stand-alone category and become an essential layer of functionality or a set of features integrated into existing sites and business models.