

If You’re Thinking of Launching a Social Media Startup, Please Don’t - melissajoykong
http://technori.com/2013/02/3290-if-youre-thinking-of-launching-a-social-media-startup-please-dont/

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garry
The reason why social media is valuable as an ad platform is because it
actually is more measurable and more effective than straight-up Proctor &
Gamble-style brand advertising that you see in magazines and on TV every
single day. It's not for everyone, and yes, some people don't get an ROI on
what they do. But that's not social media's fault -- that is the advertiser's.

My wife works in online marketing for women's retail. Every time they spend a
dollar on Facebook or Twitter, they make two, or sometimes four, or more. An
ad click or promoted post results in a measurable real sale.

Social media advertising is not that different from the kind of Google Adsense
ads you see on blogs, at the end of the day. Sure, they convert less than
Adwords and are less profitable since there's less intent, but these things
are still a quantum leap beyond what was possible before the Internet.

New channels spring up and they turn out to be valuable and help businesses
make a lot of money and build real brands. My wife worked at Modcloth and now
at Bebe. Modcloth is probably going to go public in the next few years, and
all with an online-only, email and social media-based marketing machine.
They're a profitable real business built on a new channel.

Bebe was started in 1976 and also piggybacked on a new form of advertising
medium that was unexploited. In 1976, it was bus terminals and bus shelter ads
- they were cheaper than any other method (magazine, etc) and got their brand
everywhere. Today it's a public company.

It is in 2013 as it is in 1976. I'm sure some people made bad ads and lost
money on bus shelters back then too.

~~~
jbenz
I sure would love to see examples of some of her more successful Bebe or
Modcloth facebook / twitter / social ads. Or hear about how many iterations it
took them to to get to a successful system.

~~~
thesash
Fab.com built their initial user base almost exclusively through Facebook ads
and Facebook shares. They are still one of facebook's biggest advertisers, and
even use demographic and interest data from their Facebook users to determine
when and where to run tv ads.

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richeyrw
I read an article in the Economist not to long ago, that seemed particularly
insightful. It's about investing, but I think it applies equally well here.

[http://www.economist.com/news/finance-and-
economics/21569397...](http://www.economist.com/news/finance-and-
economics/21569397-art-picking-mutual-funds-best-worst-and-ugly)

Here's the money quote:

 _Investors selecting a sector on the basis of its prior five-year performance
would have earned much higher returns over the following five years by
selecting the worst-performing sector than the best._

So if you're looking for an idea of what business to launch look at what did
the worst over the last five years... Rather than what did the best (obviously
this is just one thing to consider out of many, but I think there's a lot to
be said for it.)

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wylie
As someone working on a social media app, I call bullshit. "The funding for
these companies is plentiful because there is a serious bubble?" Now is the
worst possible time to be building a new social network, because of the
failures of Facebook, Zynga, Groupon, and pretty much everything else last
year. Investors have a pack mentality, as he says, but the pack has totally
shifted.

Also, he claims that Facebook and others' business models have failed because
they don't convert well, or because their users are "forced" to use them. So
what if only some Pages have used the product? Those are the companies that
get value from it, and they'll continue to pay for it. And Facebook has other
sources of revenue. I hardly think it's an example of a failed business model.

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zwieback
The post would be better if he didn't plug his book in the first paragraph. In
effect he's benefitting from the thing he complains about which is also not a
sustainable business model.

I think the more interesting question is what will emerge after this
transition phase where old media is dying. At this point all the webby stuff
is still bottom feeding but eventually will replace the old thing with
something new and sustainable.

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jmtai
I think this is both true and false. True for the social media startups that
do not capture user intent in any meaningful way, but false for those that do.

It's very hard to make money off of people posting pictures of cats on a
general forum (e.g. Reddit), but maybe not as hard to make money off of people
looking specifically for pictures of cats (e.g. CHEEZburger). The latter
captures user intent much more powerfully than the former, and the value to
advertisers is thus much higher.

My startup (<https://www.zupstream.com>) is focused around making it easier to
discover and organize real-world activities with your friends. We believe that
targeted advertising can work in this case, since users are specifically
looking for things to do, and then making plans with friends to actually do
them. If someone creates an activity asking, "Anyone up for dinner tonight?",
presenting an ad for local restaurants right then will be much more effective
than displaying an unrelated banner ad.

~~~
Domenic_S
Maybe I'm just boring, but I don't see the TAM being that big for something
like zupstream. The people who use it must have friends in the same locale,
who are free tonight, who _want_ to do something tonight, and have the money
to do something tonight.

I think the challenge with social is that you need people who have the
spending power of 25-30-somethings, combined with the social lives of tweens.

~~~
jmtai
Definitely true if the only use case is for spontaneous activities. We're
targeting the stuff that falls in-between spur of the moment activities and
major planned events. These are the things that make up the bulk of most
people's social lives (at least, for those of us no longer in our tweens)...
things like getting a group of friends together for dinner, a movie, or
whatever.

These are the activities that most people tend to fall back on email, texting,
and phone calls to coordinate, which becomes a pain when more than two people
are involved.

Instead of "Anyone up for dinner tonight?", imagine broadcasting to your
friends "Let's do dinner this weekend". For me, there's rarely a destination
determined up front. There's usually a bunch of back and forth with everyone
before a place is agreed upon. It's during this period that targeted
advertising could work really well, because something as simple as a "Get a
free appetizer with your meal" offer could easily sway the decision towards a
particular restaurant.

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soneca
Advising someone not to launch a startup in any industry because that industry
is broken is an oxymoron. People should be launching a startup to disrupt that
industry, not running away from it! Does social media equals ads-only revenue?
Why a social app must be all about being also a media vehicle? Ok, maybe all
founders are adressing the wrong pains, are not trying to disrupt anything,
just jumping on the bandwagon. And that would be a good point to make. But as
I see it, the whole post is about promoting his book, not a point (the book
may have a point, not the post).

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hipsters_unite
While it's all been said before I did enjoy the article more than the title
suggested I would. Plus the point about having a valid revenue stream is
always worth hammering home again.

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ThomPete
In order to understand how misguided advice this is, lets do the following:

If You’re Thinking of Launching a _____________, Please Don’t

Now instead of "Social Media Startup" write an actual business idea.

Nobody starts a "Social Media Startup". People start companies that might
involve social media to more or lesser extent or might have network effect,
organic growht and so on. But starting a social media startup is not what
people do.

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at-fates-hands
>>>>As I documented in the book, social media is a total loss leader for large
corporations, too. They’re more or less there out of obligation

I can back this up with some information. I currently work for a large
corporation who has invested a ton of money into social media (facebook,
twitter, instagram). Even after several years, there is a huge war being
fought between "new media" types in our company and the "old media" types. Our
CTO routinely joins our meetings and basically says, "Great, we had 5,000
likes on our Facbeook page, how many more widgets does that sell?"

For them, there is almost no way to track how much of an impact a tweet or a
facebook like has on their bottom line. Conversely, when they run a print ad
for a certain model, and sales increase x%, they attribute it to the print ad.

~~~
NoPiece
I think if you were selling widgets online (I assume you aren't), then the
story would be much different. You can't know what behavior your customer took
after seeing a print ad, but I know exactly how much traffic I get from our
Facebook page, and how much of that converts for us.

Unfortunately since FB has started charging to promote posts, we get almost
nothing from them, even though our likes grow, so we are all but abandoning
FB. But that is a problem with Facebook's model, not social media inherently.

~~~
tarr11
Why is this a problem with Facebook's model? It just sounds like you were
priced out of Facebook network.

~~~
NoPiece
I'm not anti-Facebook. It's a better, more accountable, place to spend money
than in a print ad. But, there was a bait and switch where they encouraged
businesses to pay to connect to users, then they devalued all those
connections by requiring payment for each communication.

The negative for them is that they are becoming more dependent on a smaller
number of large businesses. It may work for them, but it is riskier to have a
less diversified pool of customers.

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arbuge
"Social media startup" is a very broad term. More specific examples of what
wouldn't work (in the author's opinion) might have been more useful.

Any blog/ecommerce site with social sharing buttons on it is a form of social
media startup, for example.

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damian2000
People were saying this about search engines in the late 90's when the market
was highly saturated. Until Google came along.

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jpd750
Amen, thank you.

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martinced
I agree that the space is crowded. And there are other issues raising the
barrier to entry: user fatigue and national/supra-national legislation (like
the EU anti-cookie thing etc.) which may dampen your enthusiasm in case you
thought about creating yet another social thinggy.

Even on _the_ almighty social network I can not just feel (that I could since
a long time) but also _see_ people complaining.

No latter than today I opened FB just to see one post by a friend and lots of
comments about the lack of privacy on FB and why FB "knew too much" about
individuals.

It's also quite amazing: that friend (and several of those who answered)
hardly post anything anymore there. And the consensus was pretty much: _"I'm
not posting anything nor commenting on anything on FB, except when it's to
bitch about FB's policies and use of our data"_.

Non-techies friends btw.

I'd say the problem for mainstream users is that some apps are _too_ targeted:
it may be both effective (and the most cost effective way to advertize and
reach your audience), it's also _creepy_ to many users. There are some users
who realize that any site they open, anything they 'like', any video they
watch is used to target them more and more. As a result they're not liking
stuff anymore, not opening their mouth, not opening friends' links, etc.

~~~
rayiner
Wait till the current internet generation hits their 30's and gets real jobs
they're afraid to lose. All the opinionated Facebook chattering my friends did
in college has all but dried up now, and has been replaced with fake names and
low profiles during recruiting season.

In this job market, and with idiotic new features like graph search, having a
Facebook presence is a liability for all but the most whitewashed profiles.

~~~
yuhong
I am for fixing these problems if possible, of course.

------
wissler
So this guy thinks he knows the full range of ideas, and that it's not
possible that someone has thought of something he hasn't, that might just be
good enough to warrant investment.

"I must confess that a man is guilty of unpardonable arrogance who concludes,
because an argument has escaped his own investigation, that therefore it does
not really exist."--David Hume

