Is the economic foundation of social media in jeopardy?

Ivan Seeking

Given the rather unimpressive public debut of Facebook, and the negative attitude towards Facebook that was evident in some of investment experts I heard, another story in the news, brought to my attention by George Will, on This Week, suggests a potentially serious problem for social media: GM says it isn't effective as a paid media for advertising.

http://www.torontosun.com/2012/05/15...ng-on-facebook

Ryan_m_b

It seems like social media has had a crisis of commercialisation for a while though the thing to remember is that the users aren't the customers, they are the products. Facebook provides a free platform for anyone to communicate and share with their friends in a very attractive way and makes money by selling access to these people to companies seeking advertising.

It's no surprise though that over the years there's been a shift from a free communication platform towards a more monetary service e.g. [url=http://en.wikipedia.org/wiki/Zynga]Zynga[/ur] and new pay-to-promote services.

Ivan Seeking

I can't help but wonder if the effectiveness of advertising may decline generally due to perpetual super-saturation - information overload. I know that political ads have become far less effective in some cases; for example where Romney outspent Santorum by a margin of something like 10:1, but barely squeaked in an election where he should have done well. A number of analysts suggested that we saw a saturation limit, beyond which more ads had little to no measurable effect.

Given the degree of exposure to information that we all have these days, it would be easy to imagine that we might be gaining an immunity to advertising. In short, I wonder if this advertising problem, to whatever extent it may exist, is limited to social media.

Ryan_m_b

I agree with this in part but when I said this to a friend who works in the biz recently he gave me two (fairly good) opposing points: firstly whilst it might be less effective on younger demographics in the west who have grown up in a super-saturated ad world the older demographics and those from countries only just catching up in terms of internet access are still susceptible. His second point is that high end advertising is changing to become more subtle and hide itself as something else, viral marketing is a great example but in recent years complex alternative reality games have also been used to good effect in promoting products.

John Creighto

What if GM made an application (like a game or something) and then advertised access to the ap. It seems to me that, for something to catch on, on facebook, it should be interactive. Without the lure of something interactive, why would it attract users? GM could even give prizes in the game to give users more incentive to play.

Even things like news feeds, GM would have to think is this something that users will want to here. They must ask themselves what are they doing that users might find interesting. For social media, the concept of advertising must change, to keep users attention, they must appeal to the interests of users, rather then try to force them to listen to a pitch.

256bits

I fail to understand the hype about reaching customers through the internet. Majority of people spend and buy in local markets, from local businesses, not international or even across country. If I am going to buy a car I check out the selection of what dealers have in my area and don't give a crap what the price of a car in an overseas country is from a dealers over there. So some savvy sales executive at companies like GM presented a speel about reaching hundreds of millions of potential customers and the management team buys it, posts ads, and the executive gets a fat bonus. Wrong advertising model and it appears GM finally found this out. I would think other companies might follow suit. Better to shift to radio, TV, and local newspapers. Some products may have better return on advertising dollars through the internet though. Of course that is just my opinion.

Ryan_m_b

When you say "the majority of people" I assume you mean from the US? I would be surprised if this is true. From a European perspective I would say this is definitely not true (with some caveats). Firstly local markets in most European countries are a far diminished event compared to what they used to be. Secondly in most places local businesses are franchises, few settlements in the UK (bar villages) don't have a high street that is at least partially if not mostly stocked with big chain shops. So a medium - large company advertises to me because it's likely that I am never physically far from one of those shops.

But another important consideration is how this can help local, independent businesses. The idea that internet advertising is something reserved for big-brands is a damaging one for small businesses. Consider a scenario where a local shop can have a small advert put on the social network pages of people who live nearby.

Astronuc

I think some folks, with their hype, created a Facebook bubble (reminds me of the dot.com and tech bubbles). It seems to me that some believed their own hype, or that of others, and some just wanted to put something over on a lot of people.

Interesting assessments at Marketwatch -
http://www.marketwatch.com/column/Da...n%20the%20Wall

And there's Mark Hulbert's criticism - Facebook’s stock should trade for $13.80
http://www.marketwatch.com/story/fac...380-2012-05-25


I have to wonder where was the criticism two weeks ago.

Market saturation is one factor. Another factor is that many of the younger folk don't have the money to consume what others are advertising.

JonDE

This I agree with. There is much too much hype about facebook. Many people are investing, or wanting to invest in it who know nothing about stocks or how this business is run.

He completely failed to convince me that Facebook should be valued that low. If anything he convinced me that I should be researching google, and trying to figure out why they have only a 5-1 p/e ratio. That is horrendously low.