It's not what you know but who you know

A new generation of dot-com millionaires and potential billionaires is now waiting to cash in on social travel websites.

Services such as Twigmore, CouchSurfing and Gogobot allow travellers to network with one another to find free accommodation anywhere in the world. By connecting to leading social-networking sites such as Facebook, the social travel sites enable would-be travellers to arrange accommodation in the homes of like-minded friends or friends of friends in hundreds of countries.

CouchSurfing, launched in 2003 and based in San Francisco, claims to be the world's largest travel community, with more than 3.6 million members in more than 238 countries and territories. As with most social travel sites, visitors to the website have the opportunity to log straight into Facebook to use the service and can choose between being hosts or travellers, whom the site refers to as "surfers".

There is no requirement for CouchSurfing users to become hosts in order to use the service assurfers. In common with other social travel services, CouchSurfing claims to enable greater cultural understanding by bringing people from different countries together. Websites such as CouchSurfing and Twigmore, founded in 2009, based in New York City and backed by angel investors, are adding members fast and adopting an almost evangelical zeal. "We at Twigmore believe social networking can turn globalisation into a positive word and make the world a smaller place," says Stephen Smyth, the chief executive and co-founder of Twigmore.

CouchSurfing says: "Our goal is nothing less than changing the world."

But the real reason that social travel sites are attracting investor interest in Silicon Valley is that they are seen to represent the next evolutionary step for the online travel industry.

High-street travel agents are rapidly becoming a thing of the past as online bucket shops allow travellers to cherry-pick the best bargains in travel and accommodation.

Social travel sites are now springing up to tap into a whole new market comprising low-budget travellers who did not previously have the confidence to arrive friendless in foreign lands.

"Social networking can transform the travel experience if the industry can overcome a fundamental challenge - most people don't actually travel that much," Mr Smyth says. "The key is to attract everyday users with related features like Twigmore's global friend finder."

Although the site is currently building its user base, Mr Smyth says Twigmore would consider an initial public offering "down the road".

Further excitement is being generated by the fact that some travel networking sites such as the start-up Gogobot are tailoring their services for smartphones, increasingly the computing choice of those who prefer to travel without laptops.

According to industry estimates, more than 80 per cent of international travellers use their smartphones while abroad and about 70 per cent post photos from their smartphones on social networking sites while travelling.

Silicon Valley is experiencing IPO fever in the run-up to the Facebook listing this year, with social travel websites attracting particular investor interest. The growing practice of the "grey trading" of privately held shares in unlisted companies in the US is already generating considerable investor activity in some dot-coms, even well before they go for a public listing of their shares.

There are already warnings that the excitement generated by the new breed of social networking websites could overheat the sector, eventually causing a second dot-com crash.

According to Chris Jones, an analyst with the research firm Canalys in Palo Alto, in the heart of Silicon Valley, there is a growing "tech bubble". He says Palo Alto and other Silicon Valley towns are already feeling the effect of the wealth and potential wealth of the new generation of dot-com entrepreneurs and their investors in the form of rising residential and commercial rents, with office rents having rocketed by more than 40 per cent from last year.

"We are on a bit of a social networking feeding frenzy at the moment, and valuations appear to exceed revenue opportunities much like they did in the dot-com years, suggesting a market spike, then a correction likely after the Facebook IPO," says Rob Enderle, the principal analyst at Enderle Group in San Jose.

Investors must exercise caution when buying shares in small players likely to face competition from the internet giants and be gobbled up or overwhelmed before they get a chance to list publicly.

"Large players like Facebook and Google are likely to consume smaller ones and eventually lock [in] many of the companies not consumed," says Mr Enderle.

He adds: "We are clearly not done with social networking, so other more compelling offerings could yet emerge."

While early investors in social travel websites may be in line to become dot-com millionaires, there are pitfalls for unwary latecomers.

"Think of this area as one that can provide good short-term investment benefits but also will showcase increasing investment risks," says Mr Enderle.

business@thenational.ae

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