Wednesday, 21 December 2011

Will Social Media Ever Make Money?

Amidst all the global hype on valuations of social media companies that amounts to hundreds of billions of dollars there are a ton of people who say that social media and networking has not only profoundly changed us all but through some means or another we will all spend a great deal of money to either sustain it or better it in the years to come.

That's a pretty hefty bet considering the actual amount spent on social media and networking so far by individual users vastly lags the level of investments raised to date - and the fact we live in austere times. So what will change in our daily and annual habits that will push us to spend several thousand dollars per head every year going forward to sustain these heady valuations? In fact, here's a tougher question - what has social media or networking done so far that we would place that kind of individual value on it - so much so that we could never, ever do without it again?

Well, social media has indeed brought a lot of people out into the world of communication - some 800million of us have Facebook accounts alone. We exchange messages, share links, display content and we have some fun. In the world of telephony, we are happy to pay considerable sums to not only have the best device to use but to have the possibility to communicate. Perhaps, then, the only people who will ever make serious money out of the social media scene are the basic technology providers like broadband companies or mobile phone providers? After all, we will always need an input device and an access method. And there's always advertising, I suppose.

I can't help thinking where someone like Lord Hanson would have invested his money. Probably in the bricks and mortar that house the vast arrays of machinery that power the web as they are tangible assets that don't decay with user sentiment based on land that someone may always need. Maybe he would be on airtime or broadband.

What he wouldn't be in is the shares in the likes of Facebook. Or would he?

Content is going to drive social media, I am told,. Blogging (heck I am doing myself) is the lifeblood of the world of social media. As long as we have something to say, we'll use it. But if Facebook (actually I don't use it), Twitter and others stopped tomorrow could I a) survive and b) still do business? The answer is likely to be yes, I can do without any of the social media sites. 

I could but I would suggest I would have lost one of my best ways to promote my company, myself and services. Sites like LinkedIn have become important in business and there is a proven model to sustain revenues for the future based on current monies and there is more potential. But others I worry about as I wonder whether, when the money starts to be extracted, will the lustre diminish, the value be questioned and the golden colour be only a thin veneer at the surface?

Go global everyone! There is no doubt that I can get seen in more places now than ever before at the click of a mouse. That makes my company big and I can fight on similar terms than much larger companies - if not be more agile and nimble thanks to my agile infrastructure or lack of it - again thanks to the Cloud. I can analyse that a great deal of the traffic to my blog comes from North America and Asia. Yet all my customers in the last two years came existing connections I had and mainly in Europe. Most of what I have written is viewed by people who will never buy from me. So if I had to pay for that, it would be like shotgun marketing in terms of return on investment.

So social media has to go more focused and more local in many senses. In that respect, much of the implied value of social media diminishes as really all we are doing is leveraging our local scene and network. My wife has literally thousands of clients as an IFA and she gets all clients through referrals by recommendation by word of mouth. All of them. She pays for some lunches and social interaction but that is all about creating bonds and relationships. She has never got solid referrals from the internet and those she has have come at considerably lower margin than her usual network who really value her service.

Maybe there's a lesson to be learned there. Our best business and value opportunities already know us and the next best are connections of theirs. You don't need social media to unlock that, one might argue?

When all is said and done and the great money tap of social media is turned on, we may be disappointed to find that there was no alchemy at work that turns free use into real hard, sustainable money. In business history, there have been few companies who gave away their service for free who have subsequently come back and made a fortune on the same service.

Maybe worth thinking about. In that context, what has social media really done for us? And are we prepared to pay to keep it?

Last thought. Microsoft switched off free chat some years ago. They hardly get a bean in revenue in any chat service they now run, same for LiveMeeting. The answer on social networking may already there for us to see. Who knows? 

If Twitter got turned off tomorrow I would probably miss just 1% of its content. That's no value proposition.

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