Web social networks face off across borders

By Sachi Izumi and Alexei Oreskovic - Analysis

TOKYO/SAN FRANCISCO (Reuters) - As social networking services providers like Facebook and MySpace beef up their services to attract users, the battle lines are increasingly being drawn on foreign soil.

Facebook and News Corp's MySpace lead the global market and are making forays abroad, but they are coming up against a host of smaller players staking out local turf.

In Japan, Mixi Inc, DeNA Co and other home-grown companies dominate the market.

Their strength lies in game offerings -- both casual games for users like commuters on trains and hard-core games for serious players at home -- as more and more people look for entertainment on social networking sites.

Social networks let users interact with friends via blogs, games and photo-sharing. Experts say the key is keeping content fresh and innovating the product, to retain fickle Netizens who tend to hop between newer, more interesting sites.

Many of the Japanese operators, for instance, have shifted their main business to mobile phones.

"It's all about the product development capability," Yoshikazu Tanaka, chief executive officer of Japan's No. 3 social networking operator, Gree Inc, said last month at the Reuters Global Technology Summit.

"In this quickly changing market, it's crucial to be the one that proposes new products, rather than just asking users what they want," he said. "If we can do that, we can keep up with the times. But if not, we would always be one step behind."

Gree, which relies less on advertising than rivals and generates some 70 percent of income via paid content, sees its profit jumping seven-fold this financial year.

GLOBAL, OR LOCAL

Social networking sites like Facebook pride themselves on their ability to connect -- and reconnect -- people across the globe, but some analysts think it makes more sense to go local because of unique cultures and technology usage.

Nikko Citi analyst Hiroshi Yamashina said local players would likely remain dominant in the sector because they would be better at providing content and services that suit users' preferences -- unique in every country.

"Ultimately, it is impossible to globalize an SNS service," he said. "It all depends on whether the site can have an impact on users' lifestyles themselves and offer contents and functions that would increase people who cannot live without the service."

But there's little doubt social networking as a concept is a bona fide global phenomenon. As of March, more than 700 million people worldwide used social networking services, according to a research by comScore World Metrix.

That comprised more than 60 percent of the total Internet unique visitors in the month.