A social network headed for global dominance or buy-out syndrome?

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Spanish site Tuenti has cornered the young domestic market with its invitation-only model. But can it survive being bought out by Telefonica and compete with the likes of Facebook overseas?

It receives 15 percent of all Spanish internet traffic, has 11.5 million users and its own mobile phone operator and for the last year has been under the ownership of a telecoms giant. Tuenti is the social network of choice for Spains teenagers and a major corporate presence that many believe is on the verge of expanding abroad and taking on Facebook in the world market.

Tuentis figures do indeed make for impressive reading and this, no doubt, was what appealed to Telefonica when the company made its 70-million bid for the social networking site in 2010. Now, a year after the takeover, Tuenti is at a key phase in its development. And as it moves forward in the shadow of one of Europes biggest companies, its challenge is to maintain the youthful energy and maverick spirit that made it big in the first place.

The site was the brainchild of a group of young Spaniards and Americans. CEO Zaryn Dentzel came to Spain as a teenager on an exchange visit from his native California. In 2006 he came back to the country determined to set up a different kind of social network, one that is invitation-only and aimed squarely at young people, especially teens.

You can keep in touch with your friends more and share things, said lvaro Cantero, a typical user, at 15 years of age and with 400 friends on his account. If youre connected at the same time you can chat; you can share your photos and photos of your friends.

The name Tuenti comes from tu entidad, or your entity and that feeling of exclusivity has been at the heart of the project. For many Spanish teens, Tuenti is a major part of their life, with users spending an average of nearly an hour and a half connected each day.

Parents shouldnt worry about their children being on Tuenti; they should worry if their children arent on Tuenti. So says Enrique Dans, a professor of information systems at IE Business School in Madrid and the author of a book about the influence of the internet, Todo va a cambiar. He has followed Tuentis progress closely and remembers the unique California-meets-Madrid atmosphere at the company when it was getting off the ground, when flip-flops and t-shirts were de rigueur.

In the meetings the programmers were having you could see 10 or 15 programmers yelling at each other and talking in a mix of it wasnt really Spanish and it wasnt English it was in fact PHP, they were speaking code, Dans told Iberosphere.

This geeky dynamism produced a social network that is attuned to Spanish teenage culture, in which kids often go out together en masse, whether its to cafs, stores or the cinema. In particular, Tuenti has been canny in its advertising strategy. The site avoids intrusive ads, and has used promotional activities - what it calls events - to great effect. For example, a company might give away a perfume for teenage girls at a store in a particular city; the details are posted on Tuenti and targeted at girls of a certain age. They tell their friends about it and the ad goes viral.

Expansion: organic or deliberate?

Since the spring of this year, rumours have been building that Tuenti is planning a serious push overseas, in step with the international clout of Telefonica, which in Latin America, at least, is a major player. But when Iberosphere spoke to Tuenti they were decidedly coy about their plans, insisting any expansion would be organic.

The arguments in favour of Tuenti succeeding abroad, should it choose to try, are strong: Telefonicas muscle, the lack of a language barrier in Latin America, and the social network’s invitation-only model, which compares favourably with Facebooks lack of privacy protection.

Julin Villanueva, from Madrids IESE business school, points out that other invitation-only Spanish firms, such as clothing retailer BuyVIP, have already expanded abroad with success.

The arguments against are more existential. A buyout of any sparky young enterprise by a large firm is inevitably going to invite conjecture about the new owners role and whether the company being purchased can maintain its identity.

Its really hard to survive the buy-out syndrome. You get bought, your culture changes, you get new executives all over the place, etcetera and sometimes it takes two years, maybe three years, to recover from that, Dans told Iberosphere. He wrote on his blog at the time of the purchase: Tuenti is a small operation for Telefonica, its based in Madrid, and worst of all, its involved in something that Telefonica doesnt understand.

Telefonica under scrutiny

Despite the fact that Telefonicas buy-out has led to the creation of Tuentis own mobile operator, Tu, Dans says he hasnt seen much interest emerge from the social network over the last year and that buy-out syndrome is something it cant avoid.

Telefonica has had some well-publicised upheavals of its own lately, announcing it will lay off over 6,000 staff by 2013 in the face of the crisis in the Spanish economy and increased market competition. In September, the company also announced a major restructuring that included opening a new base in London to supervise digital activities Tuenti is adamant that Madrid, not London, is where the social network is being run from.

Given its owners problems, you cant fault Tuentis ambition. The flip-flops and t-shirts may be a thing of the past, but having boosted its staff to over 200 in recent months and opened an office in Barcelona and a second one in Madrid, the company seems to be preparing itself to be more than just the biggest European social network site. Much could depend on Dentzel, still a very young man whose vision and drive have been key for the enterprise, but whose dynamic spirit are likely to be tested by Telefonica.

And the next few months in Tuentis development will tell us plenty: not just about the social network itself, but also about the company that owns it.

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