The “Next Big Things” in Social Media

Jacob Harper |

Social networking is perhaps the hottest industry within the tech sector. Ten years ago, the public valuation of social media companies combined was a big fat zero. Today, it’s over $150 billion, spread out among the “Big Three” of Twitter (TWTR) , Facebook (FB) , and LinkedIn (LNKD), to say nothing of search/social hybrid company Google Inc. (GOOG) . However,the transitory nature of the social network industry highly suggests that in another ten years those Big Three could be, and most likely will be, made up of completely different entities.

And unlike the current roster, the new Big Three might even include a company is not based in the US. Both Russia and China are producing social media companies with impressive valuations and unique functionality, and it’s not outside the realm of possibility to imagine one of them eventually (or ultimately) becoming a play for American investors. 

Here are the fastest-rising social media companies in the US and abroad:

US-based Private Social Network Companies

Snapchat

Valuation: $3.5-$4 billion

Users: 35 million active (estimated)

Snapchat distinguishes itself from its peers  in that it actively embraces the ephemeral nature of social media. Users communicate via “snaps,” or snapshots sometimes accompanied by text, that disappear six to ten seconds after viewing. This feature has proven attractive with users who prefer a social media experience that more closely resembles the fleeting temporality of real-life conversation and less the potentially damning indelibility of a permanent record.   

As a company, Snapchat gets a lot of attention for both its meteoric rise and its rookie mistakes. The company notably turned down a buyout offer from Facebook for $3 billion, citing their insanely fast growth and potential advertising revenue. Only two months later, though, the company suffered a major security breach that resulted in millions of users’ phone numbers being posted online, putting a serious damper on Snapchat’s capacity to play in the social network big leagues.

Whether the company is the future of social media or their ten seconds of fame are up will likely be decided soon. Snapchat’s rapid growth is a developmental milestone in the life of social media companies, and a wide range of outcomes could materialize by 2015 including a sale, an IPO, or complete failure.

Pinterest

Valuation: $3.8 billion

Users: 70 million, approximately 30 million active

Functioning as a virtual “fantasy board” to manage theme-based image collections, Pinterest has become an unexpected major player in social media. The company has grown surely but steadily since its 2009 inception, and is primed to become the next major social media IPO.

Pinterest’s growth and success as a tech entity can be attributed to them playing by the rules of the social media startup space. Their platform is ripe for monetization and their revenue stream is diversified.. On Jan 28, Pinterest announced the introduction of the Interests feature, which adheres to the edict that social media companies encourage users to search within the site and thus keep them engaged for longer periods.

Though the company has avoided the public snafus of its colleague Snapchat, Pinterest does have some user problems to solve before going public. One, the company tends to skew older, with the 35-44 set making up a substantial portion of its audience. Two, the company derives 35 percent of their revenue from mobile, a number that must increase in line with the rest of the social media world.

Keek

Valuation: $600-$900 million

Users: 58 million active

Keek combines YouTube, Vine, and Facebook into a sort of mish-mash social media platform wherein users upload 36-second long video status updates called “keeks.” What keek has going for it more than other hot startups, and especially the domestic “Social Media Establishment” of Twitter, Google, Facebook, and LinkedIn, is its massive popularity with young people.

85 percent of Keek’s users are between 13 and 25, a demographic especially coveted by advertisers. Further bolstering Keek’s profile is the fact that the video-sharing feature is tailor-made for monetization, with the 36-second limit dovetailing nicely with the traditional 30 second long TV advertisement. Keek is also already perfectly primed for mobile, a must for a growing social media company.

Speaking of age, it is interesting to note that unlike most social media companies founded by young tech prodigies, Keek was founded by a 64-year-old programmer named Isaac Riashyk. But regardless of its aged pedigree, Keek is skewing incredibly young, which bodes well for its future.

International Social Media Companies

VK (formerly Vkontakte)

Valuation: $3-4 billion

Users: 239 million total; 55 million active

The brainchild of Pavel Durov, VK, formerly VKontakte (translation: In Contact) is the most popular social media service in Eastern Europe, and has started to gain traction in Israel as well. The company’s homepage boasts that VK is “the largest European social network” and that the site has “100 million active users,” though most estimates plug active accounts at around half that. 

Durov had long been a charismatic if divisive driving force of VK, with an unusual penchant for effective PR. Not afraid to stir the pot, “Russia’s Mark Zuckerberg” has caused uproars by throwing thousands of dollars out a window to a frenzied mob and offering a job to controversial NSA whistleblower Edward Snowden.

VK is 40 percent owned by Russian internet firm Mail.ru. On Jan. 24 Pavel sold out his remaining 12 percent stake in VK to Russian telecom mogul Alisher Usmanov, who is a close ally of Mail.ru.

Odnoklassniki

Valuation: $2.5 billion

Users: 148 million total; 38 million active

VK’s chief rival in the Russian market, Odnoklassniki was originally created to reconnect old friends. Since inception, Odnoklassniki has evolved and now encompasses 200 social media services, from gaming to video conferencing to online goods crediting. This has helped Odnoklassniki differentiate from VK, who are still more or less modeled directly after Facebook.

Odnoklassniki has monetized by moving aggressively into the still little-understood virtual goods sector. The company rakes in a significant amount of revenue selling virtual items like digital flowers or downloadable music, often on credit.

Another interesting aspect of monetization with Odnoklassniki is transparency. Unlike Facebook, Odnoklassniki users can see who has visited their profile. That is, unless the visiting user pays to surf other’s pages incognito. This option has proven quite lucrative; fee services accounted for $127 million in revenue for Odnoklassniki in 2011.

Russian internet firm Mail.ru currently controls Odnoklassniki outright.

Sina Weibo

Valuation: $6 billion

Users: 503 million

Often dubbed “China’s Twitter” or “China’s Foursquare,” Weibo is actually a bit of both American social media companies, with a little bit of Facebook thrown in for good measure. Controlled by Sina Corporation (SINA), Weibo had often served to be one of the few bastions of free speech in China, allowing information to disseminate quickly (serving much the same function as Twitter in the US and abroad.)

However, Weibo now tightly controls posts, and content criticizing the government is summarily eliminated. Its censorship measures, while in line with Chinese law, will probably prevent Weibo from being adopted outside of China to a significant degree.

Qzone

Valuation: $11.2 billion

Users: 597 million; 150 million active

Qzone is a blogging service that allows users to highly customize their experience, similar to early MySpace or Livejournal. The most popular social networking site in China, Qzone was called “China’s most valuable social media brand” by Swiss agency BV4.

The company monetizes by charging members for most services, including access via mobile. Most social media companies across the world would frown on this strategy of charging members for basic functionality, but it seems to be working fine for Qzone.

Qzone is controlled by massive Chinese holding company Tencent, who also own Tencent Weibo, a competitor to Sina Weibo.

YY Inc. (YY)

Valuation: $3.6 billion

Users: 400 million; 70.5 million active

YY is unlike the other social media companies in this article, as they are much smaller in size and are already on the American market (NASDAQ, specifically.) But YY is noteworthy for both its rapid expansion and its innovative take on what a social network can be. What started as a haven for hardcore gamers eventually morphed into one of the biggest virtual spaces ever created.

An interesting aspect of YY’s monetization strategy is their uniquely fervent embrace of virtual goods and services. This puts them in a similar category to Russia’ Odnoklassniki, but YY has attacked that market much more aggressively, creating a far-reaching virtual economy within their site.

As an example, YY users can purchase tickets to karaoke performances by YY video stars, and then buy virtual roses to throw at them. YY also features a fiat currency called “notes,” and, as virtual goods and notes comingle, the company spurs a self-perpetuating micro-economy that takes place entirely within the site.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
FB Facebook Inc. 118.91 0.96 0.81 22,442,756
YY YY Inc. 44.04 3.04 7.41 1,505,369
TWTR Twitter Inc. 19.64 0.16 0.82 19,698,311
LNKD LinkedIn Corporation Class A 195.96 0.00 0.00 0
GOOG Alphabet Inc. 776.42 5.23 0.68 1,488,059
DRRSF Arianne Phosphate Inc Ord 0.57 -0.01 -2.34 5,800

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