Breaking Down The Social Media Universe

There is an increasing amount of attention being paid to the revenue side social media.  The sites that have attracted the most eyeballs over the last 15 years have (not coincidentally) also been the sites that gave the user the most valuable experience for free.  Yahoo’s access to the world, Google’s search prowess, Napster’s rich repository of music, YouTube’s millions of videos, Facebook’s endless gamut of games and activities, and many other popular sites, have all come without a price tag for the user.  But “eyeball companies” have found it difficult to turn billions of hours of engagement into billions of dollars of revenue.  Google is the obvious exception – it has mastered paid search and turned the company into a cash machine.  But all of them have had to rely on advertising on the sites to pay the bills and to make money.  As the web has turned into a far more social experience for users, it has become imperative for every company to have some sort of strategy to take advantage of this new dynamic.

I see the social media world containing three very broad categories of companies.  Each has enormous revenue potential with proper execution.

Social Platforms  (Facebook, MySpace, LinkedIn, Classmates, YouTube, etc)

These companies are where the consumer eyeballs actually reside.  These are the sites that rank very highly in number of page views and minutes.  Some of them have millions of concurrent users, and hundreds of millions of accounts.  The business model for these sites has always been to get the eyeballs first, then sign up advertisers quickly.  Since the ads can be tailored to the information supplied by users in their profiles, there are good chances of getting high numbers of clickthroughs.   There are limitations, however; advertisers will only pay so much, and there is not a great deal of room on many of these sites for quality advertisements.  So until the eyeball companies can shift the majority of their revenue away from ads, they will be limited in their ability to grow.

Social Satellites (Zynga, MegaPlayer, etc)

These companies are a very loose amalgamation of companies doing all sorts of things related to social media, but they have several things in common.  They charge their customers for a value-added service they provide, they create, enhance, or improve content on existing social media sites, and they are very focused on experiences and user engagement.  These firms want to sell their services (in some cases these are virtual goods) to paying clients who see the value in social media for either personal or business reasons.  Satellite companies are the ones who add the meat to the loose framework provided by the social media sites.  Their revenue will depend on their ability to bring a great deal of added value to their customers.  This revenue is only limited by the number of paying customers and clients (marketing budgets or discretionary income)

Big Brands (GE, Coca-Cola, Procter and Gamble, etc)

These companies are the ones with existing products and marketing dollars.  They need new ways to market to their customers, and they need to keep pace with rapidly changing consumer behavior.   They have the most to gain in the long run, assuming they adjust their marketing to where their customers are.  It is incredibly inexpensive to build a powerful marketing campaign around social media, and there are ample opportunities to convert fans of the brand into a virtual sales force.  Small investments in social media can and will result in very large returns via an increased customer base.  Several studies have shown that well-executed social media campaigns have produced ROI far higher than any other form of marketing.  These companies have the best opportunity to make the most money in the long run.

I will explore each of these three types of companies in greater detail in future blog posts.