5.8 Social Media

Social media sites give companies and individuals the opportunity of having their own web presence without the trouble and expense of creating their own site.

Social media sites rapidly became popular. Facebook took only eight months to go from 100 million to 200 million users, and an April 2009 study by Harris Interactive showed that 48% of all American adults had either a Facebook or a MySpace account. By late 2009, 88 million Americans had used a social network site, and the percentage is even higher in Russia, India, China, Brazil, South Korea, Spain and the UK. Appreciable time is spent on these sites: a total of 13.9 billion minutes on Facebook in April 2009, up from 1.7 billion minutes in April 2008 for a stunning annual growth rate of 699 percent. Facebook reaches an estimated 29.9 percent of the global Internet user community, and is now more popular than emailing or Google searching.

Twitter is a lightweight social network built around simple 140 character messages open for anyone to read, and gained significant customer traction in early 2009.

Businesses find social media important because they:

1. Demonstrate to potential customers that the company is human and cares about their problems.
2. Expand and bring to life what is often too internally-focused and narrow a mindset.
3. Place real people behind an otherwise static brochure-like website.
4. Dynamically address customer concerns about products and services before they mount up and tarnish a company's reputation.
5. Allow the company to participate in the conversations about their business sector, products, industry, and so shape the agenda.
6. Help manage their reputation.
7. Build a customer community.
8. Established a relationship with customers, which predisposes them to buy goods and services.
9. Maintain and enhance brand awareness.
10. Maintain a relevance to changing customer needs.

History of Social Media

Social media grew from the 1990s improved user interfaces of Prodigy, CompuServe, and AOL, which provided news, sports scores, weather, and — most importantly — well-integrated message board and e-mail services that allowed people to meet, discover similar interests, and communicate with one another. Prodigy offered a $60/month advertising space and banner advertising, but the idea was before its time and didn't catch on. Worldwide Internet advertising was only $55 million a year in 1995, not the $25.7 billion/year industry of 2009.

It was Mosaic, the first widely available web browse, that popularized the World Wide Web, and HotWired, an online Web magazine, became the first company (in late 1994) to sell banner advertising to corporations, offering them at a flat rate per 1,000 impressions or views (now called CPM). For five years such banner adverts remained the most popular form of Internet advertising. As websites proliferated, a need arose for search engines to sort through the increasing volume of digital information, and the late nineties saw the emergence of Magellan, excite, Inktomi, altaVista, and Lycos. Other search engines (e.g. MetaCrawler and Dogpile) combined search results from individual search engines to provide more accurate and complete results.

Google arrived early in 1999, and its back-link assessment model quickly made it the search engine of choice, though there was initially little change to contemporary advertising models. Predictably, however, the Internet became swamped with banner advertising, and average click-through rates dropped from 2 percent to well below 0.5 percent, triggering price reductions. Google abandoned its impression-based advertising program in favor of experiments with click-through advertising, text-based ads for which the advertiser only paid when a user clicked on the ad: Google AdWords, very similar indeed to those of Goto.com, later renamed Overture by Yahoo!

The advertiser provided text according to certain guidelines, and were asked for the highest bid they'd be prepared to pay for click-throughs. Google also introduced a daily budget, giving advertisers financial control of their marketing. For the first time, advertisers could guarantee traffic to their website by simply bidding sufficient on keywords and setting a high daily budget. As keywords were relatively cheap in 2002, advertisers could be guaranteed a hundred new visitors to their site for the price of a few dollars: visitors who were potential customers, moreover, as the add text matched the visitor's search terms. In time, however, from 2003 to 2008, competition stiffened bid prices and Google increased its market share.

Classmates was the first networking site, allowing graduating classes to keep in touch with each other and post a basic profile, with further features available by paid subscription. Friendster emerged six years afterwards, growing aggressively after its 2002 launch but suffering technical problems that disenchanted its users. Friendster exposed profile data and actions to people within several degrees of separation from a user, which later, more-successful social networks avoided. Though neither Classmates or Friendster achieved worldwide success, both continue to operate today, each with a large user base. The most popular social network sites as of July 2009 (Sources: comScore, Compete and ComputerWorld, from official statistics released by each company):

Social

Network

Number of Users

Key Features

Facebook

350 million

Most used social network

in the world

MySpace

125 million

Most popular social network

from June 2006-April 2008

Twitter

75 million

Lightweight: short messages only

LinkedIn

55 million

Most popular social network

for business

Friendster

90 million

90% of traffic comes from Asia

Classmates

40 million

10% are paid subscribers

A difficulty with social media has been the business model. Acquisition of a small holding in these companies have generated large book values, but the sites are not making a profit. Hence the interest in Mark Zuckerberg's announcement that Facebook will market itself as an entertainment hub. 'Timeline' has been redesigned, and users will be able to share material they have yet to purchase by viewing, listening and reading in a live 'ticker' stream. {11}

Value of Social Media

Marketing

Social media has features useful to marketing:

1. Social media is now the way younger people prefer to communicate with each other.
2. The concept is based on 'friends', though the term is loosely applied to include companies and brands.
3. The more active a consumer is on the Internet, the more likely they are to participate in multiple social networks.
4. Social media has created hundreds of enthusiast niche sites.
5. Viral marketing, somewhat frowned on in email marketing, is much more common in social media.
6. A Facebook (and Google+) presence are more often used to craft a public image and boost search engine rankings than make direct sales. {18}
7. Everyone in social media is motivated by one or more of these: love, self-expression, opinion sharing, showing off, humor, nostalgia and making money.

Valuation

How much are social media companies really worth? Advertising revenues have increased recently, and eMarketer expects Facebook to earn US$ 3.8 billion in 2011 (up 104% from US$ 1.8 billion in 2010) with another US$ 470 million coming from Facebook credits. On paper their value is even more impressive. News Corporation paid $580 million for a share of MySpace in 2005, though selling again in 2011 for a massive loss. {12} In 2008, Google acquired 98.4 percent of Facebook in a cash and stock deal valued at $25 billion. {13} Goldman Sach's 2010 deal ran into problems {14} but effectively valued Facebook at $50 billion. {15} Facebook's May 21012 IPO raised US$ 104 billion, but shares had lost nearly half their value three months later. {17} Twitter's July 2011 paper value was $7 billion. {16}

Questions

1. What are social sites? Give some examples and their popularity.
2. Why do businesses currently find social media a 'hot topic'?
3. Give a short history of social media in the USA.
4. Why are social media companies difficult to value?

Sources and Further Reading

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