Investors tap into social sites

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Barry Maloney, a partner at Benchmark Capital, has three teenage daughters – a home-grown research and development team for his investments.

The former chief executive of Esat Digifone, the Irish mobile operator, was alerted to Bebo, a social networking web site, by the girls. Last week his venture capital firm invested $15m in the site, which was founded by Michael Birch, a British entrepreneur.

Benchmark, an early investor in Ebay, the online auction site, has acquired stakes in two other popular sites and hopes one will prove as valuable as MySpace, the social networking operation that Rupert Murdoch’s News Corporation bought for $580m last July.

Members of the sites create personal pages with blogs, videos and photographs and then leave messages on the pages of their friends.

Recently, Benchmark put $15.5m into Saw-you, a Glasgow-based start-up responsible for WeeWorld. In January last year, it was the lead investor in Sulake, a Finnish company that runs the Habbo Hotel site, which received $23.5m.

For some critics the hype that surrounds this area of the internet is reminiscent of the dotcom boom.

Bebo has about 25m unique users worldwide, according to Hitwise. It is neck and neck with MySpace in the UK and the leader in New Zealand.

Habbo Hotels has 7.1m, according to Nielsen, while WeeWorld claims to have 10m. But just because a lot of kids are spending time on such sites, the argument goes, it doesn’t mean they are spending money.

Mr Maloney, though, would have us believe the hype. News Corp’s adventure into MySpace “now . . . looks like the deal of the century,” he says. The promise of reaching out to a generation of young people that is not receptive to traditional media or advertising is too good to miss.

But extracting money from these users – or from advertisers – is the challenge.

None of the companies is yet making a profit, and revenues for most are undisclosed.

Habbo Hotel, where visitors adopt a cartoon “avatar” and play games or chat in a virtual world, is receiving money from about 10 per cent of users.

“What we learnt from Habbo is, properly presented, people will buy digital content,” says Mr Maloney.

At the moment, 90 per cent of the the sites revenues come from users paying for furniture or to play games. But advertisers are warming to the concept.

Benchmark reckons advertising will soon account for 30-40 per cent of revenue spearheaded by digital billboards in the online world for brands such as Apple and Nike.

For all of the sites, attracting advertisers is not the only problem. If the product placement is too brash or uncool they risk destroying the community, says Mr Maloney.

When it comes to younger teenagers paying for online content, there is an obvious problem with premium text messages and parents’ credit cards.

The solution to open up this market, says Mr Maloney, is the roll-out of pre-paid credit cards.

He is confident that millions of users can be translated into millions of pounds and rejects the arguments that the market is getting frothy. “People say to me is this the bubble back?” he says. “We see no sign of that.”

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