Let me start with my quick definition of social networking. I summarise it as “new technology enabling user generated content and good C2C connections”.

I appreciate this definition may be different from the usual Web 2.0 definitions but I want to make a distinction between User and Business generated content. For example, Thomas Cook published destination videos on their site and has seen conversions rise but this is not social networking. Customers are only the recipients and not the originators of these videos. Paid-for content has a use but cannot achieve the high growth achievable by user-generated content.

Firstly we need to get past the hype surrounding particular companies and look at the merits of this new phenomenon for existing businesses and travel in particular. There can be little doubt that social networking has had some success. YouTube has sold for $1.65bn and Murdoch bought MySpace for $580 over a year ago. In these cases the business WAS the social networking system and not a company harnessing social networking.

The high price tag was achieved because the social networking system has such a big audience. In my opinion, the buyers are probably going to do very well for their money because the audiences are going to grow and grow, leading to more advertising space. However monetising these sites is going to prove very difficult as the users dictate the conversation which may not be in the right direction for a business.

This may be why the buyers in these big deals are advertisers and not a business from any other industry. (Google bought You Tube; News Corp bought MySpace and Yahoo is buying Facebook for $1bn). A few of the bigger media companies (with multinational accounts) publicly said how pleased that they were that Google had taken over You Tube because they could refine their advertising rules from the blanket coverage they now received.

An interesting case study would be on the success and failure of Skype since it was sold. Skype is close to being a web 2.0 company in that it enabled good c2c conversations but instead of producing lots of user generated content it relied on word of mouth (a subtle but important distinction as sales were driven by spoken word not as the web content). Ebay bought Skype almost exactly a year ago for $2.6bn citing the deal would create “an unparalleled e-commerce and communications engine”.

How much Skype has contributed to Ebay sales? Slow integration of Skype into Ebay has delayed this verdict and Ebay’s share price has dropped because of doubts about the value of the deal (according to the FT).

The main difficulty for travel (or any other business) comes when it tries to harness this audience for its own purposes. The ability to harness social netwoking for a set of products has not been proved.

Toby Kesterton - Operations Manager, LeadGenerators