Ever since the Facebook IPO debacle last May there’s been a
lot of fretting about the real value of social media platforms. Facebook’s
stock opened at $38 a share, and today trades at about $21, a loss of 45% or
about $25 billion dollars, or the equivalent of the GDP
of a small country – say Cyprus or Panama.
Of course not all social platforms have disappointed so
magnificently. LinkedIn, the social professional networking platform, IPO’d in
May 2011, and first day investors have made
a healthy 50% return. There are other success stories.
The valuation of social platforms isn’t just about investor
returns. We need to consider the value proposition to users and to those that
will provide income to these platforms – potential sponsors. Most social
platforms have at their core an advertising model for making money, and
advertisers have also begun to express their value judgments. Responses have
been mixed. Back in May this year, shortly after Facebook’s roller-coaster IPO, GM
announced that it was withdrawing advertising support, citing poor
performance. Many other companies have taken a measured approach to all online
advertising, although according
to Forrester, advertising revenues for social platforms are expected to
rise by 34% through 2014. To some extent, advertising on social is a victim of
its own success: clutter and saturation make any advertising or sponsorship
difficult. And many potential sponsors see an opportunity to disintermediate
all media, and reach out directly to potential customers with their own
tailored content. Then there’s the Transparent ROI Problem – online is so
amenable to measurement, smart companies are able to precisely gage the hard
returns on investments (or lack thereof), and increasingly are discounting
softer brand benefits.
One thing is certain – the value proposition to users of
social is beyond compelling. For most teens, Facebook is as necessary to life
as oxygen. For most everybody else, social is an ingrained and everyday part of
life, like the morning cup of coffee or, dare I say it, like the daily newspaper
used to be. It is this collective addiction to social media that is
fuelling a social media investment bubble, but until we find a clearer conjunction
of shared value between users, sponsors and the platforms, the real potential
won’t be realized.
To some extent, LinkedIn shows the way and for sponsors and
users, the meeting point for shared value is bound up in the idea of community.
This is where we find the common values of like-minded users of a product, or
passionate followers of a brand. In LinkedIn's case, they attract professionals who want a
mediated way to network with colleagues and companies, and businesses want a
way to find talent. Everyone sees value. Today, too many social platforms are hoping to exploit
business value by mining users’ personal information, marketing this data to
companies. Trouble is, users don’t see the shared value – they see
exploitation, and that’s not good news for social media companies.
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