Social Networking Sites Are High Value Acquisition Targets

Information Week tells us that more than half of America’s teenagers are using social networking sites:

Older teens, girls in particular, are the most likely to have created online profiles at social networking sites such as MySpace.com and FaceBook.com. The study found that 58% of girls and 51% of boys in the 12 to 17 age group had created an online profile. Among those in the 15- to 17-year-old range, 70% of girls had online profiles compared with 57% of boys.

The reasons teens use social networking sites, according to the study, include maintaining contact with frequently seen friends (91%) and rarely seen friends (82%), social planning (72%), and making new friends (49%). Only 17% say they use such sites to flirt.

Hearst, looking to get into the market which has been revolutionized by News Corp’s purchase of the most popular social networking site in the world–MySpace–has purchased two smaller sites:

Hearst’s digital unit said it bought eCrush.com, a group of entertainment and social networking sites for teens and young adults. The network includes such sites as ecrush.com, which provides a way for visitors to see anonymously if someone has a crush on them; and eSpin.com, a social
networking site for Gen Y.

The company also said this month it would launch MyPromShopper.com, a prom planning Web site that draws on the editorial of CosmoGirl, Seventeen and quarterly Teen.

And in February, Hearst will relaunch the Web sites of its three teen magazines, CosmoGirl, Seventeen and Teen, the first of several Web site relaunches that are planned for the months ahead.

Other new media players have reportedly been looking around for social networking properties, but so far the networkers are holding out for MySpace-sized money (Rupert Murdoch bought MySpace for $580 million in 2005). Friendster turned down millions from Google in 2003; last month, Facebook turned down a $1 billion offer from Yahoo. The details of Yahoo’s “Project Fraternity” were leaked to the press:

Things really heated up mid year. Yahoo proposed a $1 billion flat out acquisition price based on a model they created where they projected $608 million in Facebook revenue by 2009, growing to $969 million in 2010. By 2015 Yahoo projects that Facebook would generate nearly $1 billion in annual profit. The actual 2006 number appears to be around $50 million in revenue, or nearly $1 million per week.

These revenue projections are based on robust user growth. By 2010, Yahoo assumes Facebook would hit 48 million users, out of a total combined highschool and young adult population of 83 million.

Our sources say that Facebook flatly rejected the $1 billion offer, looking for far more. Yahoo was prepared to pay up to $1.62 billion, but negotiations broke off before the offer could be made.

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