Tagged acquires Hi5 in a bid to double its user base

Smaller social networks bunching up to survive under the powerful dominance of Facebook

One of Facebook's competitors, Hi5, was acquired by San Francisco-based Tagged on Wednesday. 

In 2008, Hi5 was in the top tier of social networks, along side MySpace and Facebook but has fallen far down the ladder as Facebook as taken over the space. 

The exact details of the acquisition were not disclosed publicly, but the Wall Street Journal reported that, the currently profitable social site Tagged, made the acquisition in a move to combine social forces as Facebook gears for its IPO in the spring of 2012.

Over the years Hi5 has attracted some $52 million in funding while Tagged raised $13.7 million in funding.

Over the summer, News Corp. sold MySpace for $35 million, a high discount from the $580 million price it paid -- illustrating the rapid devaluation in social networks that don't rhyme with Shmasenook.

“At Hi5 my colleagues and I recognized the unanswered opportunity to connect new people online,” said Alex St. John, former president and chief technology officer of Hi5 in a statement. “Tagged is the perfect home for Hi5 as it continues to prove itself as a major contender in social.”

WIth more than 800 million users, Facebook dominates the social network industry, acquiring companies with talent and tools it desires,  leaving the remaining companies like Hi5 and Tagged to pick up the leftovers.

In 2008, when Hi5 CEO Ramu Yalamanchi spoke with Vator News, the company was ranking higher than Facebook in the addiction that its users have to the site -- Hi5 with 73% and Facebook with 63%.  He credited this advantage to Hi5's ability to "provide a social experience, enhance the way people interact with their friends, and make it fun."

Tagged, which was founded in 2004, has squashed any idea that it will reach Facebook's social networking level and in 2007 decided to refocus efforts on creating more quality connections and added social games to its network.

Hi5, founded in 2003, also made the attempt to be a central figure in social gaming, but its efforts were not as strong or sucessful, especially as Facebook and Zynga got cozier and more powerful in the industry.

Since both companies had hopes of being competitive players in the social gaming arena, there could be a re-framing in the works that allows Hi5 to create a new, stronger gaming platform that has more focus and fosters more addicts to play together.

This acquisition looks as though it could double the company’s user base from 10 million users to 20 million. Tagged has based a great deal of its strength on its social networking outside the U.S. -- where it is popular in Southeast Asia, South America, Spain, Portugal and Romania.

Since Hi5 also pulls in a global audience, this combining of forces is proming in the growth of the company -- the company estimates that there is only a 10% overlap of users between the two products.

While the users and some of the talent will go to Tagged, the company is still expecting to allow people to access the social service through either site -- Hi5 or Tagged.

Tagged reported a revenue of $33 million in 2010, and is expected to end the year with revenue between $43 million to $45 million.