Economics of Social Media

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Social media platforms in conjunction with economics is about the relationship between social media platforms and their users content with the companies that maximize the access of user’s personal information in order to shape, modify, and adapt their brand strategy to turn a profit. Recently, Facebook signed a controversial deal with WhatsApp, a company that has a large, young, and loyal user membership base, and in which, comparatively speaking; stands alone as unique and novel than any other social media platform because of its text messaging, picture and video sending services that are offered for free. Is this a smart investment on the part of Facebook? Does it hold any economic value? It seems to me that it does. Since companies are about branding their ideas and selling their concepts to a target audience, and ad targeting is the mechanism by which they accomplish this task, then it would behoove them to allocate a link that would supply them with concrete data that can discern the “wants” and “needs” of its potential target audience and thus drive their brand forward in the most effective and cost-effective manner. WhatsApp, a mecca for data information through text messaging, is exactly this. It is a marketing/advertising firm’s dream for its gateway to the “knowable” of existing trends and the imaginings of a material culture. WhatsApp processes 50 billion messages a day, and with that comes a plethora of information that can be useful to companies in order to strategize their ad content and effectively sell their ideas to its potential target audience. Although WhatsApp deletes messages once they have been delivered because of it privacy issues, Facebook, which already operates anonymously in accumulating data information that offers insights and trends to brands could potentially circumvent this issue by scanning the information before it is deleted and then attaching it a user’s persona page for ads targeting. To quote Mark Schaefer, “Let’s say a new movie preview comes out and the studio pays Facebook for an analysis of the buzz coming through WhatsApp text messages. Facebook scans the messages for volume and sentiment before deleting them and delivers a real-time report to the studio before the moviegoers have even reached their cars to go home.” (http://www.businessesgrow.com/2014/02/20/whatsapp/)

whatsapp

It’s a relationship built on mutual economic interests; whereby one hand feeds the other. It’s a win-win situation. In utilizing WhatsApp data information, Facebook not only potentially increases revenue for advertising companies but it also becomes the model for successful advertising. Thus they are sought after for ad placements by major companies, and increasing their revenue pool. Bret Holmes, the director of Money Morning E-Commerce, stated in an article (How Do Social Media Companies Make Money?) written by Tara Clarke on www.moneymorning.com, that,”… the key to unlocking value for social media companies is successful advertising models. Social media companies are legitimate advertising websites, no different than, say, Google or Yahoo. The same way Google made its money is the same way Twitter and Facebook will make their money”. (http://moneymorning.com/2014/07/14/how-do-social-media-companies-make-money-2/)

With Facebook’s acquisition of WhatsApp it will become this successful model for advertisement, because of what WhatsApp could do for them through its vast user network and the incredible personal data of information that can potentially be related to companies that are willing to pay for that information. But it’s a two way street, as the rise of revenues in the billions show, social media platforms like Facebook and Twitter rely on revenues from ad placements linked to their newsfeeds or on individual posts for the fruition of their company’s growth and sustainability in the global market. Which is why it is no big surprise these social media empires are quick to jump on “golden” opportunities (i.e. WhatsApp) to build on the strategic points on which the economics of social media is built on, as asserted by Mark Schaefer: “1) Obtaining more users, and then increasing the amount of personal information collected about those users that can be turned into targeted ads, and 2) Getting users to spend increasing amounts of time on these platforms so they can see more ads.” (http://www.businessesgrow.com/2014/02/20/whatsapp/)

As a side note, companies who are engaged with social media have proven that there is a direct correlation between profit and social media. In a 2009 report of the 2008 Business Week/Interbrand Top 100 brands that were studied, indicated that social media had an impact on their profit making (bottom line). Engagement is a key to success! Brands that sought out the avenue for ad targeting on social media platforms were more than likely to squash their competition who did not utilize social media as a tool to meet their bottom line. The report also showed that during recession, ad targeting on social media still brought in significant revenue, and brands saw increase of revenue by 18% over a year’s growth while those least engaged saw revenues losses of 6%. (http://www.steveseager.com/profit-the-bottom-line-of-social-media-engagement/)

To me the most successful and inspiring of stories are the companies who build on a concept of emotional capital as a means to gain success with social media. There is an honesty and integrity for building on a communication base between community and brand. The economic value for such a relationship can be staggering, as exemplified by Stein Ove Fenne, President of U.S and Canada Tupperware Brands Corporation; who used Facebook in a personal and intimate way to showcase his personality and brand in a relatable and authentic way. He was building on the notion of emotional capital—an investment of sorts. “Emotional capital is the aggregate feeling of goodwill that people have towards their community,” said Shipilov. “Authenticity is the feeling of trust that people have towards the leader of the community that is being organized through social media technology.” (http://www.forbes.com/sites/insead/2012/10/09/how-social-media-can-boost-profits/)

How did he do this? Well, he went about using “soccer moms’ as his consultants for his Tupperware brand, and then conceptualized and developed a radio show program titled “The Tupperware Radio Show” (webcast programs) that showcased these soccer moms who participated and post comments on Facebook, while hosted the program. By doing this, he essentially formed a trusting and open relationship with his target audience and consequently during the weekend of his broadcast show his brand began generating great revenues.

Links:

http://www.businessesgrow.com/2014/02/20/whatsapp/

http://moneymorning.com/2014/07/14/how-do-social-media-companies-make-money-2/

http://www.steveseager.com/profit-the-bottom-line-of-social-media-engagement/

http://www.forbes.com/sites/insead/2012/10/09/how-social-media-can-boost-profits/

 

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