Are Social Media Businesses Viable?

My thoughts recently have been about the business model for many if not most of the major Social Media infrastructure sites around today. The question I have been asking myself is, how will Social Networking sites make money?

This is a serious issue, and the current hype over Social Media sites, reminds me greatly of the situation in the middle of the Dot Com boom, when everyone was so carried away with the idea of Internet based business that they forgot the basics of business, that is there must be a way of making money out of the business otherwise it Will eventually fail.

Parallels are everywhere, Twitter the current doyen of social networking sites, not only does not make any income; but further there is no facility in its current business model to make any money. Twitter, according to recent comment raised nearly $100m on top of the $35m raised in February, yet it still has no way of generating any income. The question we ask is what happens to investor sentiment when its astronomical growth figures inevitably slow: recent reports, in the USA at least, suggest this may be happening now.

Similarly Bit.ly the default url shortner for Twitter has no method of generating income neither has budurl or tiny. These are key infrastructure players in the social media landscape yet they have no workable business model. Further there is a host of apps for the likes of Twitter and Facebook which are free. I find it rather disconcerting to think that much of the infrastructure platforms that underpin Social Networking don't have a viable business model. It's also somewhat ironic to think that those same platforms are filled with users propounding the benefits of monetising social networking and exhorting who ever will listen to do the same.

Once they hype cools and sentiment becomes more cautious, or realistic depending on your viewpoint, then investors will be looking for a quick return i.e. a trade sale, failing that, they'll curtail and then stop further investment as the prospect of a reasonable returns diminish. The worrying aspect to this is two fold firstly, who exactly will buy them: I cant see Facebook, the only Social Network business with the muscle to pay the prices that are likely to be demanded, going on a spending spree, it doesn't need too. Google could of course, but currently seems to have its attentions elsewhere and its previous foray into Social Media with Orkut was a dismal failure. So wherelse are the buyers? The omens aren't good; outside of the industry no purchase of a large scale social media business has been successful. One thinks of Fox's purchase of Myspace and ITV's purchase of Friends Reunited as classic examples.

Secondly, any difficulty in getting further funding could lead to radical shifts in service and costs for participation as survival takes precedent over funding. This could mean either a wall of advertising, or subscription; neither model is frankly appealing. You need a lot of advertising to payback about $150million and support the infrastructure and make ongoing profits. Subscription would stop growth dead, since buyers wouldn't want to pay to talk to potential sellers, when everywhere else it's free

The warning is therefore not to take "free Social Networking" as a given; there is a real possibility that one of its key benefits "that it is free at the point of sale" may become a thing of the past.

ExigentConsulting specialises in providing Business Turnaround, Sales, Marketing and Mentoring to the Small and Medium Business.We help Business Owners improve the profit performance of their business.

5 Steps to Building a Social Networking Strategy

The Economic recession has been one of the unseen forces driving growth in social networking for business. The explosion in social networks is a response to the desire to find new routes to a more competitive market. The decline in performance of traditional SEM and e-commerce generally and the seduction in the perception of "free" marketing all helped to drive the social networking revolution. These were by no means the sole drivers of this shift and the confluence of technology and a critical mass of users were also major factors. Social Networking is here to stay and businesses need to make good use of it. It is nonetheless a complicated and for the new entrant, a daunting prospect. There are a few easy steps which will help you develop a social networking strategy and prioritise it as a route to market.

To build a strategy you need to ask yourself a number of questions.

Step 1 Do my customers have a footprint on the Social Media Landscape?

This is a fancy way of asking am I likely to find my target market using social networks. Well it tends to vary by sector. Social Networking is well suited to businesses which have intellectual capital, so consultancy, finance, and to a lesser extent accountants and solicitors are good examples. Social Networking is also an excellent platform for selling to products to consumers and small businesses.

So what's not well suited? Well engineering and manufacturing are obvious candidates, as are businesses that sell large ticket business to business items be that capital goods or say software.

Social networking works best for markets that have a short sales process and low ticket items where you can get ready access to the decision maker. Geographic concentration is also an important factor the bigger the geographic spread of potential customers the better suited to social networking.

Step 2 What are my objectives?

Brand Recognition, Customer Service, Sales, Improved customer feedback, New product development /verification, Developing Expert Status.

May companies use social medium to improve their relationship with their customers and have a more conversational customer support relationship, so let's not prejudge and say that sales is the most important or indeed only objective for social media marketing.

I accept that much of the hype is around the incredible sales opportunities Social Networking presents, but let's not forget how at the turn of the century the "dot.com" boom got so out of hand that even experienced businesspeople forgot the basics. That is, underlying each model there has to be a sound business case.

Step 3 Which is my best Social Media Mix?

There social media market is a complex topology covering Wiki's, Major Social Networking sites, Micro blogging sites, Forums, Blogs, Article Sites, Photo Sites, Podcasts, Video sites, Social Bookmarking and many more.

Faced with this bewildering array of options how do you proceed? There are two aspects that are important, firstly you need to take into consideration where your customers are most likely to to be residing in the social media landscape and especially if you are a smaller business what areas of social networking you find interesting. If we remember that much of social networking is about building trust and developing a community it is very, very, hard to do this through a medium you dislike.

Step 4 How do I manage my resources?

What resources do I have available? How much time can I dedicate to this effort? Is this for internal and/or external networking? How much maintenance effort is there?

Maintenance work is one of the real hidden costs in social networking, which is by and large time intensive. As most people and indeed businesses are time poor this is a significant issue.

Now I know particularly with twitter there are "bots" you can use to automate much of your postings you need to spend "face time" to build conversations and relationships. A simple idea is to build a social network diary which sets out which social network will be accessed on which day(s) and how much time will be spent on each. Think not of now when you have the first flush of ideas, but rather 1 year down the line when you're into you 50^th blog posting and 1000^th plus tweet or facebook entry.

I regularly see businesses over invest in Social networking only to have to pull back because they have significantly underestimated the ongoing effort needed.

Step 5 How do I measure progress?

What Metrics work best? Hits per site? Growth in followers? Reduction in complaints? Increased conversion rates? Feedback process to change what is not working?

Any kind of strategy implementation needs a review and change cycle, so it is with Social Networking. The advantage is however that online activities it is relatively easy to quantify and the results of your efforts. This makes the management of your social networking strategy much more effective as numbers don't lie, 50 hits is 50 hits, not as many as us optimistic would say; well I think its nearly 100.

This precise measure enables you to take quick and appropriate action to improve your performance. This in turn leads to you having a much greater chance of success, which is, of course, what we're all trying to achieve.

ExigentConsulting specialises in providing Business Turnaround, Sales, Marketing and Mentoring to the Small and Medium Business.We help Business Owners improve the profit performance of their business