Social Machinery

Telefonica has been trying different strategies to tap into the exponential growth of social media phenomenon. And tt seems like this time they are making their biggest bet in this area by acquiring 90%  of Tuenti, the second largest social networking site in Spain for 75 Million Euros.

Tuenti is a Spain-based, invitation-only private social networking website that has been referred to as the “Spanish Facebook.” .The site is targeted at the Spanish audience, and is currently accessible only to those who have been invited. Tuenti features many tools common to social-networking sites. It allows users to set up a profile, upload photos, link videos and connect with friends, recently a chat application has been added. Unlike similar social networking sites which feature banner advertisements, Tuenti has opted out of these traditional forms of “noisy” and obstructive advertising.

Google Zeitgeist’s 2009 listed the Tuenti as in Third fastest-rising global search. It is currently estimated that there are more than 8 million users, making it the country’s most popular social network.

Regional Social networking MVNO?

One of the biggest rumors around Telefonica’s move is the idea of creating a social networking MVNO, leveraging on the strong brand recognition that Tuenti has been able to create among youngster between 14 to 25 years old. Besides, Telefonica has the biggest presence in most Spanish-speaking countries around the globe.

According to analysts, the plan will be to spin off Tuenti from Movistar brand and focus it on young segments. As communication services are becoming richer compared to traditional voice and SMS services, this new company could leverage not only on traditional Telco capabilities but also offer more advanced communication services. The winning proposition will be to offer cheap voice calls, cheap text messages, affordable internet access and rich communication services leveraging on their current social networking proposition but also other strategic acquisitions made by Telefonica recently, like Jajah for VOIP.

One supporting fact around Telefonica’s possible move is that Tuenti technologies was registered as MVNO in the Spanish telecommunications regulator comission last January.

The “social graph” value

Telefonica’s 75 Million Euros for Tuenti social networking site implies paying 9 Euros per subscribers. According to many experts this number seems to be comparatively low for the Spanish market. Only on advertising Telefonica spends around 140 Million Euros yearly. In that sense, the payback for this acquisition can be easily justified in terms of the audience and data Telefonica will gain from Tuenti’s 8 million subscribers.

Nevertheless, the track record of social media acquisitions is not the most exciting one. Still few people can forget some infamous cases like:  Bebo site bought by AOL for 850 Million USD and sold  two years later for 10 Million USD,  Myspace, bought by Newscorp for 17 EUR per users and now completely hopeless or Xing sold for 12.63 EUR per user to Europea network and now with little chance to take off in the social media space. Comparatively speaking, Tuenti seems cheap compared to other social media acquisitions. Other emblematic cases also shows higher value per subs:

38 € / user paid Google for You­Tube

24 € / user paid eBay for Stum­ble Upon

14 € /user paid CBS for Last Fm

58 € / user paid Disney for Club Penguin

At the end of the day is hard to predict what is going to happen with social networking sites in 5 to 10 years. In that sense, unless Telefonica is able to monetize the current acquisition by creating new subscribers (MVNO), leveraging on Tuenti’s strong brand or the social graph data for targeted marketing activities it could run the same fate like others strategic acquisitions done in this area. Moverover when social media culture is completely different that the Telco world.