I spent last weekend with some ‘non-web’ mates, and received a ribbing for my continued use of the twitter facebook app, which exposes them to my constant tweeting via their facebook homepage. Just goes to show bizarre Twitter appears if you take it out of context and show it to people who haven’t heard of it. “Rich, it’s ridiculous, we know more about your life than our own!”
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Are we seeing a social media bubble developing?
I had about 5 separate conversations about Twitter with these friends that all ended with them making the same point: “It’s not that great if it can’t make any money.” Good point methinks. For me, Biz Stone’s statement to Stephen Colbert that; “We recognise the difference between profit and value, and we’re building value right now” kind of sums it up; successful social networks have all focused on facilitating communities that are both addictive and useful in equal measure to their members. This is the value. However, when the focus has shifted to making a profit, Facebook, Myspace, and now Twitter have all struggled.
Facebook is not making a profit that lives up to its hype, its size (800 employees, nearly 200 million users) or its valuation ($15bn anyone?). Myspace makes more profit than any other social network, yet it is currently beleaguered by social network snobbery and falling usage, and I would suspect a good proportion of its ad revenue is generated by Google AdWords users unwittingly leaving the content network enabled on their ads. I would add that Myspace’s profits also don’t live up to the hype / number of employees and users / valuations banded around.
These fiscal shortcomings leave people like Stone and Zuckerberg unfazed: in an interview with a German newspaper in October ‘08 the FB founder said: “Growth is primary, revenue is secondary.” As a history student I know that like a dodgy kebab, events are liable to repeat on you, and this statement strikes me as pretty familiar to the mantra of the digital industry during the rise of the dotcom bubble.
The difficult question to ask is: why are social networks struggling to make a profit, when a good proportion of us can happily admit “I’m a facebook / twitter / myspace etc addict?!!” To me the answer is relatively simple; ‘traditional’ CPC / CPM ads don’t work in the same way on social networks as they do elsewhere especially when compared to SERPs.
When it comes to CPM/CPC advertising on social networks the click-thru rates ads achieve are way less than 1% in the main. Advertising 101 is: target your offer to meet a need or desire felt by a prospect. People are being sociable on social networks, they aren’t looking for something. There isn’t a ‘need’ to serve in a social network like there is in a SERP. Social network CPC / CPM only really works as a first referrer to your brand, not as a sales generator.
From the advertisers POV, the great selling point of web marketing over radio / tv / newspaper is the ability to easily track a quantifiable RoI. As anyone who’s been to social measurement camp will tell you; doing this for social media outside of CPM / CPC campaigns ain’t that easy. When advertisers turn to ‘social engagement’ campaigns to have more success in these networks, they encounter this problem. I mean, could skittles tell you exactly how much their little stunt last month was worth in pounds and pence? Unfortunately not.
This brings me to a two-pronged conclusion: The problem I see with social networks is as long as you can come up with a successful concept (big if!) like Zuckerberg and Stone have, it’s fairly easy to create ‘value’ for members (indeed, once a community reaches a certain size, it will tell you what facilities it wants you to develop). However it’s not so easy to create profit. Your members just want to enjoy the value, so traditional PPC is a hard sell to advertisers unless they can accept they are just introducing their brand and probably won’t make a lot of sales. When an advertiser ‘gets social’ instead to try and generate some sales they can’t really track the RoI, negating the main benefit of web advertising.
If advertisers can’t make advertising work like they can on SERPs, and users won’t engage with CPC / CPM ads in their social space, can social networks ever make the kind of profits that will justify the hype surrounding them?
Despite this question, the social media industry is booming. I find it remarkable just how many ‘twartups’ Mashable informs me of, all of which are based on a business that has no revenue model! Twitter grew 3000% year on year during March, and FB membership is still rising astronomically amongst all sorts of demographics. People in the digital space are dedicating more and more of their time to social media and genuinely don’t seem to be concerned by the “Growth is primary, revenue is secondary” mindset, despite the economic doom and gloom. These are classic signs of a burgeoning economic bubble.
As investment in ‘traditional’ CPM and CPC campaigns on social networks continues to dwindle, more and more agencies, organizations and entrepreneurs are focusing on social media campaigns through these networks aimed at engaging with customers. By doing this they are moving further and further away from a focus on RoI – surely the one thing we should all be doing in a recession? There seems to be no similar buzz around data driven online marketing in 2009, despite the obvious measurable benefits things like improving your website conversion rate can provide.
Are we witnessing the rise of a social media bubble? I believe that if you work in the digital industry and are spending more and more of your time focusing on socil media it’s important to recognize the difference between the value that social networks provide and their sustainability. It shouldn’t be taken for granted that social networks will eventually monetize in a way that will make huge profits. The social media bubble exists because so much is being staked on this assumption, yet all the signs point to this being a near-impossible task. I guess you should think twice before deciding if now is the right time to become a ‘social media expert’, or whether that twitter based startup is such a good idea!