In my last post, I briefly touched on the economic aspects of the social graph. There are, however, much broader implications which exist vis-à-vis the relationship between economics - specifically in the areas of advertising and marketing - and social media, which I will attempt to cover in this post.
The emergence of social media is thought to represent a paradigm shift in the areas of online advertising and marketing. Most brands now make a concerted effort to maintain and manage an online presence in order to acclimate themselves to the current socioeconomic climate which, in many ways, is driven by social media. However, a mere website is no longer sufficient in ensuring a brand's successful promotion online; indeed, this was the case as recently as a decade ago. With the emergence of social media, companies must now cultivate their brands online through the use of any combination of social media tools such as Facebook, Twitter, and Google. This development and sustenance of a brand's online identity is achieved through what is called online presence management, the process by which companies maintain and draw traffic to their brands and their corresponding websites or webpages through a combination of several different online resources including web design and development; the utilization of any number of social media channels; and search engine optimization (SEO), wherein companies seek to optimize the visibility and accessibility a website or a webpage has in a search engine's (such as Google) "organic" search results. These resources, which lend themselves to the management of a company and its brands online presence, can be thought to keep social media, and the advertising channels which support them, afloat.
And yet, many businesses now depend on social media for new potential ad space. The relationship shared by many companies and social media outlets, however, can be considered a symbiotic one: they depend on one another if they hope to see profits. As businesses begin to gear their advertising models towards the new environment furnished by social media, virtually all social media outlets are beginning to indulge advertisers in order to realize the full potential of their profitability. Facebook, for example, has seen slower growth in its userbase this year than in past years - however, the company reported fourth quarter sales of $2.6 billion this year, up 63% from the same time last year. Over 90% of this revenue is reported to come from Facebook's ad sales, while overall ad revenue likewise rose 73% from last year.
Moreover, we can look to an article found in Money Morning, titled How Do Social Media Companies Make Money? Money Morning E-Commerce Director Bret Holmes says that social media companies are "legitimate advertising websites, no different than, say, Google or Yahoo." He continues, "The same way Google made its money is the same way Twitter and Facebook will make their money."
The same article cites a 2013 Nielsen report which highlights some staggering findings: 89% of advertisers use free social media advertising and 75% use paid social media advertising, while 64% of advertisers expected that they would increase their paid social media ad budgets over the course of 2013. Another report projected that total social media advertising revenue in the U.S. would grow from $5.1 billion in 2013 to $15 billion in 2018. Simply put, this spells the potential of a tidy profit for both parties to the business arrangement: the social media profit from increasing ad sales, while the companies responsible for the ads benefit from exposure to new markets, a cross-section of an environment which encompasses dozens of different demographics, and overall, an altogether unique model by which to promote whatever it is they are selling.
Links:
http://moneymorning.com/2014/07/14/how-do-social-media-companies-make-money-2/
http://money.cnn.com/2014/01/29/technology/facebook-earnings/
http://en.wikipedia.org/wiki/Search_engine_optimization
http://en.wikipedia.org/wiki/Online_presence_management
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