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