By Olga Kharif and Peter Elstrom Four years ago, social butterfly Parita Buddhdev found her wings clipped. A Kenya native, she had just moved to the U.S. and began working full time and going to school at night. That barely left any time to go out and meet new friends. Undeterred, Buddhdev soon embarked on her quest wirelessly.
Through mobile service SMS.ac, Buddhdev found profiles of users living near her in Los Angeles, with similar interests, like camping and hiking. Then, while stuck in traffic or at a boring lecture, Buddhdev would use her cell phone to send them a short-text message (SMS) to say hi. Eventually, some of these SMS conversations led to face-to-face meetings and brought her a handful of real-life buddies.
KEEN TELCOS. It's success stories like that that are leading to a stampede into SMS.ac and other so-called mobile social networks. These services help users find dates, keep in touch with friends, share photos, and update their blogs -- all via cell phone. And they're so popular, they could soon catch up to their online cousins -- Web sites such as MySpace.com, LinkedIn.com, Friendster.com, and Tribe.net, which have attracted tens of millions of users and $61 million in venture capital, according to consultancy Frost & Sullivan (see BW, 6/13/05, "Hey, Come to This Site Often?").
Today, that might be a bit hard to imagine. Currently, SMS.ac, the mobile social-networking market leader, claims some 40 million users, only 14% of whom are based in the U.S. Most other services only have thousands of customers, who typically pay a $5 monthly subscription fee. Yet social-networking services are already a major driver in the use of SMS and multimedia messaging (MMS), says Scott Ellison, an analyst with consultancy IDC.
And the service's popularity should skyrocket as telcos, which usually get a cut of subscription and SMS fees, roll out more of these applications later this year. Sprint (FON), for one, began offering SMS.ac as well as mobile-dating services Match.com Mobile and Lavalife Mobile several months ago. SMS.ac "has exceeded our original expectations of usage and users," says John Styers, Sprint's director of data-communications services. So the telco will introduce more mobile social networks in three to four months, he says.
DEEP USER POOL. How big can this market get? In the U.S., subscription revenues alone should rise from $31.4 million this year to $215 million in 2009, according to Frost & Sullivan estimates. Additional revenues from forwarding SMS and MMS messages could easily double that amount, says Brent Iadarola, an analyst with Frost & Sullivan.
Besides, these social networks, typically catering to 18- to 35-year-olds, could make additional money off the ringtones, games, and music downloads this demographic favors. "We could be bigger than Microsoft," contends Greg Wilfahrt, co-founder of SMS.ac. Clearly, that's a bit of an overstatement, even if SMS.ac's sales have been growing 50% a quarter for the past two years.
What's more realistic but no less exciting is that mobile social networks could eventually snag more users and generate more revenue than online social-networking sites. After all, the installed base of cell-phone users is much larger: There are 2 billion cell phones in the world, vs. fewer than 700 million PCs.
No wonder online heavyweights such as search engine Google (GOOG), dating site Match.com, and even online social networking sites are ramping up their efforts in the mobile social networking market.
THE FRIENDSTER TOUCH. While many social networking Web sites are still struggling to find business models, that's less of an issue with wireless users, who are used to paying for content and applications such as SMS and MMS, says Joe Hurd, director of international business development at Friendster.com, an online community of 17 million people. Meanwhile, consumers are used to getting nearly everything on the Internet for free, so online social networking sites have to dabble in classified advertising, job search, or music marketing to make ends meet.
That's why Friendster began testing Friendster Mobile, a wireless social networking service, in the Philippines in December. Already, Hurd says, "hundreds of thousands of people" use the service, which sends them SMS alerts if someone from the Friendster.com site has contacted them. Customers can also upload pictures from their cell phones onto their online Friendster.com profiles and download and send messages to their buddies. The company plans to roll out Friendster Mobile in other parts of Asia and in Europe -- historically ahead of the U.S. in all things wireless -- within 12 months.
In the next few years, though, the U.S. will begin catching up, particularly as giants with lots of marketing muscle enter this business. In May, Google, which previously attempted but failed to buy Friendster.com, acquired two-person mobile startup, Dodgeball.com. Available in 22 major cities including New York and San Francisco, the service lets people find others based on their exact geographic location -- for example, a user can track down another Dodgeball.com member sitting in the same bar. Or friends can arrange to get together halfway between their respective workplaces.
STARTUPS SPRING UP. Already, the Dodgeball.com team is talking with Google folks about enlisting additional developer and marketing help, says Dennis Crowley, one of the original owners. And it's working on new features, such as blocking people you don't like.
The hands-down best part for users is that, for the time being, the service is free. With Google hoarding $482 million in cash and equivalents, "we're more focused on [improving] the experience right now than on making revenues," Crowley says.
Another heavyweight ramping up its mobile efforts is InterActive Corp.'s (IACI) Match.com, the world's largest online dating site. The company has offered Match.com Mobile, a stripped-down, $5-a-month version of its online service, since 2003. But in July, it will debut a more advanced mobile dating service in Japan. Members will be able to post multiple photos with their profiles, receive daily or weekly lists of matches, and perform complex searches -- all from their cell phones, says Joe Cohen, chief operating officer of Match.com.
Startups in mobile social networking are springing up as well, with some selling specialized networking software. One such company, WhoAt.com, has already licensed its program to a partner in France and is in talks with a potential licensee in Japan, says founder Adam Frey.
BUYOUT TARGETS? Indeed, because online social networking is so hot, funding for startups might not be that hard to come by. Venture capitalist Esther Dyson is already an investor in Midentity.com, an address book that can be used to keep tabs on business contacts and friends and to send them SMS messages.
Dyson believes mobile social networks might, eventually, become engulfed by heavyweights such as Yahoo (YHOO) and InterActive Corp. Viacom's (VIA) MTV Networks just acquired NeoPets.com, an online social network for kids. There's no reason why wireless social networks can't become attractive takeover targets, too. After all, how else can one make new friends in this fast-paced world anymore? Kharif is a reporter for BusinessWeek Online in Portland, Ore. Elstrom is a BusinessWeek senior editor in New York.