Friday, September 28, 2012

The Value of Social Media

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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