A recently published business development analysis by research firm Gartner looked into social networks' need for a more structurally sound revenue stream, and came to the conclusion that to maintain viability and competitiveness, they will soon enter the financial services industry. One Gartner analyst, Juergen Weiss, went so far as to predict that by the end of 2014, one of the major social networks - by implication, Facebook - would enter the business of property and casualty (P&C) insurance.
"Offering insurance products to their communities would be a natural extension of social media providers' financial services strategies," reads Weiss' conclusions, "and would allow them to capitalize on their extensive set of information they constantly collect about their users."
The predictions appear in the latest of a Gartner series of "Top Industry Predicts 2012" reports, using data compiled late last November. The report's editor, Kimberly Harris-Ferrante, cited "radical shifts in customer behavioral changes and buying habits... challenging many industries to reinvent their product development and sales and services processes to align with customer expectations and technology use."
The train of logic begins with Gartner analysts Stessa Cohen and Peter Redshaw, who cite a rapid increase in the number of online banking transactions. This increase has already driven banks to accelerate the establishment of their social presences through Facebook, Twitter, LinkedIn, and yes, if you can believe it, Flickr. (Banks share their family photos with their customers. No joke.)
"Traditional banks risk being disintermediated by social media websites that are increasingly looking for additional revenue streams beyond advertising," Redshaw and Cohen write. "This is a natural extension of the rise already seen in comparison and aggregator sites, especially for more commoditized products such as small loans, general insurance and credit cards. Examples of recent activity include the social payments startup Twitpay, the virtual currency Facebook Credits and the acquisition of the U.K. price comparison site BeatThatQuote by Google."
This "disintermediation," as Gartner's analysts put it, includes the enablement of online debt management services and peer-to-peer loan pools, all of which happens by way of social networks more than by stand-alone Web sites. To stay competitive, traditional banks (Gartner cites Citibank as the leader here) have launched services that reach their customers through Facebook, and enable them to conduct transactions through a social network rather than a Web site.
Here's where Juergen Weiss takes over. Weiss notes Facebook's Timeline feature as conducive for users to share their everyday events - getting married, getting a new job, entering retirement. Financial institutions are already using tools like Salesforce.com's Radian6 to search for these events as social net users share them. Weiss believes this could become the social net proprietors' opportunity to pre-empt those institutions from stealing away their own customers. Within just the next few years, he predicts, the social networks themselves (again, implying mainly Facebook, though perhaps Google also) will offer banking services, and then "naturally," insurance services as well, perhaps initially through joint ventures with existing financial institutions but not necessarily the bigger firms.
The Gartner analysts perceive this as a genuine threat to the existing insurance industry. In their report, they advise insurers to plan now for the commoditization of their products and services, implying that they should perhaps be sold through portals the way cloud service customers purchase bandwidth and virtual machines today. A ripple effect from this seismic shift could impact government regulators worldwide, whose inability to adjust to changing circumstances has already been blamed for such events as the collapse of the Central Bank of Ireland, and the sub-prime mortgage loan crisis in the U.S.