The Monetization of Social Media

It all started with a place, aptly titled MySpace.

At least that’s the first social media site that I can remember. The concept was all about personalization, as if to say (in a digital context) this is who I am, this is what I like, this is…well…my space. The site was like the inside of a junior high locker for adults, or perhaps those in transition to adulthood. Gone were the Zack Morris posters of my early teen years and in its place was a digital slideshow of songs, images, and the binary equivalent of “pieces of flair.”

MySpace was the site where you could select a song to play on your homepage and you could personalize responses to questions such as “do you smoke” and “are you in a relationship?” The website, launched in 2003, but lost a large percentage of its users the following year when an unknown, college-based site called “Facebook” launched in 2004. 

What started as a platform for amateur bands to share their music, transitioned into a social media site for friends to connect, share pictures and chat online. The key distinction from MySpace was that Facebook was less about individualization and more about connection and collaboration through shared interests and points of commonality. If MySpace was the personalized 8th grade locker that each student made on their own, then Facebook was the larger mural painted along the wall of that same hallways that invited everyone to grab a brush and add their own creative input and perspective.  Aside from my selection of Kanye West’s “Stronger” as my intro jam, there’s not much that I remember about MySpace. While it would be a stretch to say it was immediately ‘killed’ by Facebook, it was most certainly rendered obsolete.

Through the years, Facebook has undergone an aggressive evolutionary arc: from an IPO last year, to the constant criticism over user privacy laws, to the development of ad space and data mining, the one constant that affects Facebook and other emerging social media platforms is the unflinching need to monetize the product. In the context of the digital evolution 3.0 it posed an interesting question: what’s the most effect means for monetizing social media?

Those of you with Instagram accounts have seen the test run of advertisements, which will hit user feeds later this week.  As predicted, the ads will appear like a “normal” instagram photograph, but will have the word “sponsored” written in blue above the post in lieu of the usual timestamp.  Instagram is rolling out the new ad platform by utilizing brands that already have an established presence among Instagram followers, such as Ben & Jerry’s and Levi’s. 

In essence, the ads will look like high quality photos, using the same filters available to 150 millions users worldwide. The concept is focusing less on standing out—like most Google or Facebook ads—and more about blending in to the user experience. Most polling data among millenials indicates that content marketing and organic advertising are not only preferable, they are far more effective than the billboard or blinking light platform used by prior generations of traditional and digital advertisers.

Since its launch in 2010, Instagram has seen 16 billion photographs, approximately 55 million posted daily and 1.2 billion likes every day. (Statistics provided by Instagram) In order to personalize users advertisements, Facebook (Instagram’s parent company) and Instagram mine user data by monitoring photos liked and ads clicked, as well as providing a feedback button, similar to the one found currently on Facebook’s ads, for users to determine which ones they don’t care to see.  The algorithm is collectively referred to as Data Mining, and can be seen everywhere from Harris Teeter coupons that print out predictive items at the register when you enter your VIC number, to government agencies such as the DIA or NSA, which run complex formula to find the points of commonality among internet traffic, purchases, phone calls, etc.

Like Instagram, those who advertise on Facebook, must have an active account.  Facebook provides options to help advertisers reach a vast number of people, they might otherwise not engage.  In essence, the more time a user spends online, the more he or she will notice certain ads pop up over and over again.  For example, my ads are clothing, fitness or cooking related, because those are the retail websites I most often visit. The data mining algorithm combs through my web history and pulls items or services that it predicts will align with my user preference. Just like Harris Teeter and the DIA. So, why does this matter?

Simple. Because despite the jeans and hoodie culture that dominate tech and social media start-ups, these companies are the new paradigm of big business. Silicon Valley doesn’t line up $20, 30, 100 million buy-ins for lemonade stand type companies.  From Amazon to Facebook, to Twitter, to Reddit, to Zappos, tech-based companies are the new normal, when it comes to big business. Case in point: Ashton Kutcher is currently the highest paid actor on television, but despite his reported $750,000 per episode wage scale, he apparently earns an even larger wedge of his pie chart from his savvy portfolio of tech company investments. 

Need another pop culture example? No problem. Singer, dancer, actor, investor, overall every-man, Justin Timberlake was a lead investor behind the re-launching (and rebranding) of myspace. Targeted as a deliberate reboot from the original MySpace, the new focus is on creating a music based social media platform.

According to Forbes, “Facebook’s ad revenues have exploded, especially on the mobile side of its business, where it generated more than 40 percent of its total ad dollars during the second quarter of this year, up from approximately 25 percent the previous year.” Within that same framework, Twitter, in just seven years, went from a struggling start-up to one of the most influential communication platforms in the world. 

To put that in context, today, the social media platform holds more than a quarter of a billion users who send approximately 58 million ‘tweets’ per day.  With Twitter, however, it’s unclear to investors whether or not these users are susceptible to advertising.  Most users are online to send or receive quick hits of information – 140 characters or less – which might not translate into a monetizable format over the long term.

Then again, the tech movement is about evolution and expansion, so who knows how the malleable social media ad model will evolve to compliment the Twitter crowd. One thing is for certain: those who sat on the sidelines and called social media nothing more than productivity killers and an untranslatable product for Wall Street, have now been left on the side of the road.

When it comes to social media, the product might change, but the platform is here to stay