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If You’re Thinking of Launching a Social Media Startup, Please Don’t (technori.com)
62 points by melissajoykong 1607 days ago | hide | past | web | 31 comments | favorite

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.

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.

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.

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.


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.)

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.

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.

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.

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.

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.

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).

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.

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.

>>>>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.

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?"

That is incredibly sophisticated thinking for a large co. In my experience, it goes more like this.

1. PR guys pay a blogger with no traffic to write a post.

2. Blogger writes article and gets paid handsomely (The PR guys don't know he has no traffic since they didn't want to offend him by asking).

3. PR guys flog interns to generate chatter via social media.

4. Interns tweet amongst themselves.

5. PR guys get some mathematically incorrect and dubious metrics for some ill defined thing like "social media reach" and declare that said blog post generated 190 million impressions, which is equivalent to (just because) $5 million dollars of media.

6. PR guys claim victory and celebrate. Their superiors wonder what the hell the PR guys actually do for a living and get back to their infighting over budgets and why the sales guys aren't getting more product out.

Total cost to big co? Hard to tell, but I'd guess somewhere around $20k when you add up all the salaries involved and the huge fees the agencies charge.

But the bottom line is that even the most wasteful social media is peanuts at BigCo. It simply does not matter.

[Note: this is not a made up story. The numbers are slightly off because I can't remember them, but that's about it]

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.

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

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.

I don't know why, but the CTO's question sounds so wrong. And my view is that you cannot get the right answers if you do not know what to ask and, especially in this case, what to measure. Intuitively, reading this question I felt like I would answer "Great, we have circulated 5000 memos, how many more widgets does that sell?" It is wrong in so many ways. Not all memos/likes are created equal (unless you make them so by ignoring them.) Not every activity is a sales/front-line activity. I do performance management for a living, and people routinely get the performance measurement part wrong in so many ways. But especially for social media I think we are still at the lowest level of performance understanding and concepts' articulation.

You could probably make a company distinctive by not appearing on any social media platforms. Not having to kludge all those little [f] and [t] share icons onto every ad would probably make the creatives happy.

"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.

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

Amen, thank you.

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.

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.

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

> 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.

This was Target's realization, was it not? They were doing super-specific targeting and analytics, like sending coupons for pregnant women (to the ire of a teenage woman's dad,) and later switched to "hiding" the coupons in irrelevant coupons so the pack looked more generic.

Personally, I'd much rather receive the focused coupons. I'm not going to stop a company from learning about me unless I go paranoid, so I might as well receive insight as to what it thinks it knows.

Five minutes ago I thought that Amazon, Netflix, and Pandora simply couldn't nail my tastes, but perhaps they're in some long game of not creeping me out and knowing that I'll return _some_day_.

This is true for me to. Particularly the last bit, I never "like" embedded content (links, videos, etc), and never click the links themselves either (if I care, then I Google the description to find the link outside of Facebook).

Facebook still knows you did that. Going there at all associates the link to your FB profile.

You may want to use a VM without FB logged in if you don't want FB to know what you are doing. Maybe even on another net connection... but that's only for the ultra paranoid.

I can't see how Facebook would know without the destination sending your details back to Facebook. And in those instances, the destination site wouldn't know if I've ended up there after a suggestion on my friend stream or because a cat randomly jumped on my keyboard and coincidently typed their search pattern into Google. So such statistics would be pretty meaningless to all but our other internet overloads, Google.

> Non-techies friends btw.

Non-techies friends FTW, but only if they're good enough friends to tell you how it is, even if it risks hurting your feelings.

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

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