Tag Archives: social media

Social Media Market Saturated Despite Risky Business Model

When was the last time you clicked on a Facebook ad? Option A: you can’t remember. Option B: you never, ever, clicked in any of the ads. Option C: does anyone actually clicks on those ads?

Apparently, people do, for 85% of Facebook’s revenue comes from advertisement (the other 15% is from selling virtual goods), and you wouldn’t expect Madison Ave. to divert from traditional advertising models if they didn’t see solid statistics backing the option.

There are two ways in which such statistics are good-looking. Either the company is very good at targeting a niche market, or it is not so good but have a huge audience. Facebook is on the second category. In fact, due to the currently low success rates of target advertisement, internet business who provide free services have no alternative of survival but to become big enough so that their size can compensate for that. (Unless they plan to live from donations, such as in Wikipedia’s case.)

Two questions then arise. First, since there obviously isn’t market for a lot of big social media websites (after all, people have to eventually stop looking at pictures of friends or cat videos and do some productive work), why is it that we keep seeing new social websites popping up? Second, why is target advertisement so difficult that internet companies can’t afford being small?

The answer to the second question involves a paradox. On one hand, everyone would be delighted to hear about a product they would enjoy having, a new band they would love to listen to, a play they would like to see. On the other hand, most people are obsessed with privacy, refraining from giving personal information to this or that company. Though privacy is certainly a right, without more precise information companies can’t provide more adequate ads. There’s no way around this. Not until A.I. tools are so advanced that user preferences can be inferred by interpreting jokes and comments.

The first question is more obviously answered: there are a lot of investors, with no better idea about where to put their money, that are too afraid of missing the “next big thing.” That’s why we have Path, Tumblr, Pinterest, and many other social media venues whose purpose intersect, most of which we don’t even hear about. What’s their business model? You bet it’s advertisement. Which one is going to grow enough to profit from advertisement? Take your bets.

Apparently, there’s no shortage of entrepreneurs dreaming they have the perfect alternative to Facebook, nor of investors to back their startups. But we’ve already got enough tools for connecting, liking, and sharing. It’s time for entrepreneurs and their funders to think of something else. According to recent reports on decline of time spent, and multi-week breaks from Facebook, some internet users already are.

(A version of this article appeared in Washington Square News.)