The Rise Of Social Media And Its Impact On Advertising
Social media platforms such as Facebook have shown stellar growth in users over the year, and are also trying to monetize their user base, changing the landscape of various industries in the process
Published: May 17, 2014 at 4:07 pm EST
Social media networks have been around for more than a decade, developing all this time to incorporate various aspects of human interaction. Over the years, with the interplay of several factors including internet penetration and device proliferation,an unprecedented number of people have joined the social media bandwagon. Facebook Inc. (FB), for example, boasts a growing user base with latest reports putting the social media giant’s total users at 1.28 billion.
Although, user growth is a crucial metric to gauge the success of social platforms, effective monetization of user base is essential for the sustainability of such companies. Typically, monetization is done through advertisements only, but type of ads differ from platform to platform. Facebook, for example, monetizes its user base through advertisements in the newsfeed via sponsored content, or video ads as of late. Pinterest employs ‘promoted pins’ for advertisements to generate revenues.
However, user growth for many platforms seems to have slowed down. Given the huge user base for Facebook, a slowdown in user growth seems inevitable. Twitter Inc.'s (TWTR) user growth has slowed down to below 6% quarter-over-quarter in the last two quarters. In order to accelerate their user growth, social media platforms need to expand by making internet accessible in remote areas so that more people sign up for social websites.
While device proliferation and internet penetration continues, these companies are working on attracting ad dollars. Facebook earns more than 90% of its revenues from advertisement and, of that, nearly 60% from mobile. It started off with sponsored content in the form of ads on newsfeed, which have been a key revenue driver for Facebook. Once the company sorted out its business, it ventured into expanding it. Facebook started an acquisition spree which includes chat app WhatsApp, Oculus VR and several other startups. The company is working all out to ensure it is able to sustain growth. Recently, it started its own mobile ad network called Audience Network in order to leverage on its massive user data.
Twitter, a microblogging service, has been facing problems increasing its user base. With the increasing presence of journalists and media personnel on the platform, it seems to be evolving into a media platform. On the other hand, Facebook is a personal communication platform that allows forhigher engagement levels for users. Twitter monetizes its users primarily through promoted tweets and promoted accounts.
Similarly, many other social media platforms monetize their user base by leveraging on the data they collect.
The emergence and domination of social media platforms has changed the landscape of the internet, impacting the way individuals communicate with each other.They have also given birth to a new niche in the advertisement industry by moving away from conventional advertisement practices.
This trend has the potential to disrupt traditional, search-based advertisements, which is dominated by Google Inc. (GOOG). Pinterest, a social bookmarking platform which has a photo or pin collection of 30 billion on its platform, recently introduced Guided Search. This will allow users to type out one-word search, and then filter it by just swiping unneeded ones. Facebook's Graph Search can be a massive search engine also, given the amount of sharing taking place on the platform.
Going forward, social media platforms will become a crowded place for advertising. In such an environment, striking partnerships and integration agreements will become essential in the industry. Recently, Amazon Inc. (AMZN) and Twitter entered a partnership, allowing users to add products to their shopping carts by replying to a tweet with their desired product link and the hashtag #AmazonCart. Even though Twitter is not getting a cut from Amazon’s sales made through the microblogging service, it will be able to attract ad dollars from advertisers. Alibaba also partnered with China’s Twitter-like service Weibo, and made the latter profitable through advertisements.
With continued integration between e-commerce platforms and social networks, the online payment service industry has been flourishing. Facebook has applied for payment services in Ireland and is waiting for approval. Several payment services such as PayPal and Stripe have also been striking partnerships.
All in all, social networks have brought billions of people online, making the internet an open platform for communication. On the other hand, social media platforms have changed traditional media, advertisement, and online shopping etc.
Data collected by these social media giants not only benefits advertisers, but also aids researchers and academics. According to a Harvard University research project, social media has transformed public space into a behavioral laboratory. A couple of years back, Google was able to predict influenza based on searches.
This implies that potentially, many social trends can be predicted given the amount of communication that takes place on websites such as Facebook. For example, Google recently acquired a fitness tracking app called Moves, which provides basic metrics such as steps taken, sleep tracking etc. Over the years, the company will have substantial data on people’s fitness habits which it can sell to pharmaceuticals other than monetizing it through advertisements.
One major issue at the core of social networking is that of privacy. Users share their personal information on these platforms, which at times is abused by other users.
Twitter has been faced with the problem of fake accounts which has often led to the spread of rumors resulting in mayhem online.
The deluge of social sharing platforms has also led to an increase in unreliable content generation. Various new startups however, have created meaningful content, and giants such as Facebook are also working on it. Platforms indulging in unreliable content generation eventually stand to lose out on advertisement dollars.