Major Reason For The Success of Social Media

In recent times, we have seen the emergence of ‘new’ media sites – aka social or citizen media. Based on the principles of a democratic Web, these sites have witnessed through-the-roof growth. Flickr, YouTube, Digg, etc. are prime examples of such sites that have gained tremendous popularity.

So, what did these companies do that made people flock around these sites? Is the opportunity to express oneself without editorial controls – ‘citizen journalism’ – the reason? Or, is it the ability to showcase one’s talents – exhibitionism – an adequate reason that explains the popularity of these sites. Is there some common denominator amongst the top sites that satisfactorily explains the meteoric growth of social media?

To examine these issues one has to understand how traffic gets generated on the Internet.

Generating Web Traffic
Web visitors arrive at a webpage (thus generating Web traffic) in one of three primary ways:

1. Typing the webpage address directly onto a Web browser. This results in “Direct Traffic.” Generation of a lot of direct traffic is contingent upon a lot of people knowing about the webpage and remembering its address correctly. Further, the webpage may be required to satisfy an existing need that compels the “surfing public” to return to the page repeatedly. Information about the webpage address and its contents has to be disseminated widely amongst Internet users either through promotion (by traditional means or otherwise) or through viral means (word-of-mouth, e-mail, etc.).



2. Clicking the hyperlink (to the webpage) provided on another webpage the Internet user has visited. Such traffic is termed “Referring Sites Traffic.” If the content on the webpage is useful, it is possible that Internet users may refer and even hyperlink the webpage (called ‘inward link’) in their own Web content. Thus, visitors looking up other Web content may follow links provided and arrive at the webpage. Such inward links also bump up the importance of the webpage (i.e., its “Page Rank”) and lead to higher rank in the listing of results for relevant searches.



3. Clicking the result (i.e., the hyperlink corresponding to the webpage) of a search on a search engine such as Google or Yahoo. This traffic is called “Search Engine Traffic.” As explained earlier, the more inward links to the webpage, the higher our webpage will rank in search results. And the higher a webpage ranks in search results, the more likely the user is to click the link and arrive at the page.

Now, the above explanation holds good for a website, which has multiple pages. So, the traffic of the website is the sum of the traffic generated by each of its individual web pages.

Generating Traffic for Social Media
Social media sites are typically content-intensive sites. Apart from lacking “stickiness”, social media sites with very little content are unlikely to generate any appreciable amount of traffic (particularly, referring site and search engine traffic). Besides, most users of these sites initially will be just content consumers (and NOT content contributors).

Further, old media has often provided the seed material (often copyright-protected print and multimedia content) for social media site owners during the initial stages. This has often provided the impetus for Internet surfers to flock these sites. Consequently, it is customary for social media site owners to seed their sites with content (relevant to the site’s theme / concept) initially. Seeding content has proven to be the best bet for attracting initial traffic.

Once the social media site gets seeded, its traffic's is likely to increase over a period of time, particularly if the site is actively promoted. Promotion typically means getting inward links into various pages of the site and attracting users through conventional advertising. Aggressively promoted sites thus get more eyeballs, which makes the sites attractive for online advertising. The social media site owners then capitalize on the opportunity to sell or earmark space on web pages for advertising.

However, it is simply not economically viable for social media sites to sustain traffic growth by seeding content on their sites. Eventually, they must rely on user-contributed content for traffic growth. But, what is the motivation for the vast majority of content consumers to go that extra mile for taking the time and effort to create and contribute content on social media sites? In the answer to that question lies the secret of the success of many social media sites.

Opportunity for Generating Traffic from Social Media Sites
The Internet as we all know is being used for a wide range of business-related activities (including, but not restricted to, online advertising). Clearly, a for-profit website needs to enhance its traffic – the more traffic a site generates, more the potential for revenue generation. Thus, owners of business-oriented websites will devote substantial effort to get eyeballs to their sites.

Individuals seeking to promote themselves (e.g., a speech or presentation; an amateur music composition) have also tended to use social media extensively. Often self-promoters (typically website owners) use “old media” content and copyrighted material to promote themselves (e.g., using a MTV video clip with their website address captioned on it). For owners of for-profit websites, social media offers a no- or low-cost means for site promotion. The absence of editorial control provides an opportunity for creating inward links into their web pages and for generating eyeballs.

Clearly, vested interests drive both ‘self- & site-promoters’ to use social media. Looked at differently, social media sites have proved to be a breeding ground for a new-genre of “spamming”. And, being non-disruptive, it also has a certain degree of legitimacy (without the ill-will) that conventional (e-mail) spamming never did.

Therefore, it is little wonder that much of the content on social media sites is promotional in nature!

Does Community Trump Content?

The Online Publisher Association announced in January 2008 that it added “Community” as a category to its Internet Activity Index (IAI). Since 2003, the IAI has provided monthly reports of time spent with Content, Communications, Commerce and Search, and in January 2008, a Community category was added.

This is somewhat reflective of the prevalent feeling that “content” is passé and that “community” represents the future of the Web. This thinking may be driven by the astronomical valuations of community sites like Facebook, which have dwarfed the previous valuations (by no means insignificant) of content-centric social media sites.

Pure Community Site
To really examine this issue of “content vs. community”, let us first imagine a website catering to a community brought together by a common interest:

1. Without ANY content. Assume this hypothetical site is a doorway to a hidden, presumably vibrant private community. In other words, it does not have any content – effectively Web pages - exposed to the external world.
2. With registered members who can post information regarding their common interest (by, shall we say, filling out a form). Other registered users get periodic emails related to their common interest – in a way similar to a private e-group (such as Yahoo groups!). In other words, the subscribers to this site do not get to see any content either.

Such a site is unlikely to get indexed very effectively by some search engines because of the lack of publicly visible content. Other search engines might index it highly if the marketing efforts were to focus on the creation of inward links.

Due to aggressive promotion, the Website can derive its traffic organically through searches or through referrals driven by inward links. Traffic can also arrive directly with the Web address of the site. Regardless of the origin, the incoming traffic to the Website is likely to be volatile – pretty much “Get In / Get Out” (GIGO) traffic. The primarily reason for this volatility is the lack of content – consequently, retention of traffic is low as there is neither stickiness nor a compelling reason for the visitor to continue browsing. Thus heavy promotion of the site will be ineffective – visits might go up significantly, but not page views.

The lack of clarity about what the site is about (since there is no content exposed to users) will also result in low new user registrations. Even the few who do get converted will in all probability soon think the site generates excessive spam and terminate their subscription.

Fundamental Building Block
Thus content is the fundamental building block for any site. It drives stickiness and leads to successful community formation (by compelling users to return). In other words, content is a prerequisite for community besides being a component of community. After all, as others have pointed out communities are combinations of content, commerce, communications and search. Others have even declared that “When It Comes to Time Spent Online, Content Trumps Community.”

Has Facebook taken Microsoft for a ride?

The Microsoft investment of $240 million to pick up a 1.6% stake in Facebook has attracted significant media attention. The investment obviously puts Facebook valuation at a whopping $15 billion. Let us take a look at some hard, cold facts to analyze the merits of the investment.

1. A Wall Street Journal (Online) report has indicated that Facebook expects to breakeven in 2007 with revenues of $150 million. The Journal also estimates Facebook’s 2007 earnings at $30 million. That equates the Facebook valuation (of $15 billion) at 500 times estimated earnings. Google in comparison is trading at $707 (Oct. 31, 2007) for a market capitalization of $164.66 billion giving it a value multiple of 49.33 (on earnings of $3.3375 billion) – less than 1/10th the valuation multiple of the Microsoft investment in Facebook.
2. If the same “100X multiple” on revenue were used on Wal-Mart Stores, the largest 2007 Fortune 500 company in America would have a market capitalization of $35.1 trillion – almost 3 times the GDP of US.
3. Facebook is believed to have more than 50 million users worldwide. Thus, their value works out to $300 per user. It can be estimated that with its Sept. 2007 global search engine market share of almost 57% (per HitsLink statistics), Google has almost 710 million users worldwide (taking Sept. 2007 Internet World Stats estimate of Internet users into account). At $300 per user, Google should have a market cap of almost $215 billion, which is 30% more than what Google’s current market cap is. And, oh, by the way that would take Google to a share price of almost $1000.
4. Valleywag reports click-through rates on Facebook are astonishingly low at 0.04% (Myspace is 0.10%). This probably is a clear indication of lower disposable incomes of Facebook’s user base. Further, taking comScore Sept. 2007 statistics into account, Facebook generates about 6.0 million ad clicks per month. In comparison, MySpace generates about 45.0 million ad clicks per month. MySpace revenue has been estimated at $525 million for 2007 or roughly at $1 per click per year. The corresponding figure for Facebook is $2 per click per year.
5. According to market research firm Parks Associates, few U.S. consumers are willing to pay a monthly fee to use social networking sites. This online survey of Internet users found 72% of social networking users would stop using a site if required to pay a $2 monthly fee. Likewise, nearly 40% would stop if a site contains too many advertisements. Clearly, Microsoft must have seen value in Facebook’s potential to generate ad revenues and NOT subscription revenues.

Facebook’s monthly burn rate must be in the vicinity of about $15 million. If it has indeed broken even, the Microsoft investment is just insurance money - something that reassures Facebook about its future. Thus, it really does not make a whole lot of sense why Facebook is supposedly thinking of raising additional capital from hedge funds. Do we know all that we need to know about what is going on within Facebook? Why would anyone value Facebook so high?

The Microsoft investment is clearly a bet by Microsoft – a “leap of faith” if you will. Microsoft is banking on the fact that eventually Facebook would be a better destination for online advertisers. Microsoft clearly thinks that unlike Google, Facebook knows a lot about its users, their profiles, hobbies, interests, activities and so on. This helps advertisers run targeted campaigns more effectively. On the contrary, Google does not know any of this information. Thus, Microsoft is hoping that Facebook with help them become a serious player in the growing market of "social advertising".

How will profile searches impact Facebook?

Facebook recently announced:

“Starting today, we are making limited public search listings available to people who are not logged in to Facebook. We're expanding search so that people can see which of their friends are on Facebook more easily. The public search listing contains less information than someone could find right after signing up anyway, so we're not exposing any new information, and you have complete control over your public search listing.”

The decision (as announced) at face value is aimed at letting people search for friends who are on Facebook. It appears to be a logical enhancement of Facebook functionality. But, the ability to search for friends has always been available to registered users. Any user seriously interested in connecting with friends would not mind registering on Facebook at all.

So, why this sudden change of policy permitting (unregistered) users not logged in to search users. What are the other implications of this decision? I have a simple (but, speculative) explanation for this decision.

A recent Online Publishers Association report clearly indicates trends in Internet traffic. The report has shown online traffic to be shifting away from commerce and communications sites to social networking and media sites. Further, users on social networking and media sites spend time viewing other users’ profiles to leverage the possibility of connecting with other users who share interests.

Thus, the opportunity to increase page views might have prompted Facebook into offering the public search listing feature. The objective very well might have been to improve stickiness. Another reason could be to increase conversions. Afterall, a casual visitor is more likely to register if he or she finds another friend or buddy to be a user of Facebook and wants to connect with that person.

So, Facebook seems to have taken a leaf out of the MySpace book. Needless to say this is a step in the right direction. The functionality should have been made available a long time ago.

The decision clearly indicates Facebook is no longer a niche social networking site focusing on the student community, but a mainstream player. It is definitely going to be interesting to watch the “social networking showdown” between MySpace and Facebook over the next few months.

New Media Differentiators

Robert Scoble in his "What is social media?" post explains “new, social, emergent media” nicely. It also sums up the salient aspects of social media by comparing it with “old, traditional media”.

Summarizing the distinguishing attributes of new media as compared to “old media” such as print media (e.g., newspapers, magazines, catalogs, paper mail, books), broadcast media (e.g., television & radio programs), digital media (e.g., CDs, DVDs, mini discs), Robert pointed out the following (I am rephrasing these points just to give a more personal touch to this post):

1. Old media once made public cannot be modified. For instance, the songs in a released CD cannot be changed.
   
2. Old media are mostly one-way communication channels that don’t let consumers interact with the producers of the media. For example, readers of blogs can leave behind their comments. In this regard, broadcast media is an exception since some programs do indeed permit listeners to call in and interact with the programming.
   
3. Social media lets consumers rate, remark, review and recommend stuff in almost real time. Other consumers can get a sense of the quality and / or popularity of the media item. On the contrary, old media gives consumers no idea of quality or popularity of any item until much later (e.g., a best seller list or Nielsen TV ratings).
   
4. With “new media” it is much easier to search archives and locate related content. New media also permits manipulation of material in ways that are just not possible with older media. Searching and locating related material in case of traditional media is relatively more difficult.
   
5. New media makes it possible to mix and match media types. For instance, you can have a video clip or a bunch of photos published with your web log.
   
6. New media imposes few or no editorial restrictions on the duration of broadcast or length of a publication. There is also greater freedom with topic selection and quality of production. For instance, one can publish a 20-page article on the Web or 100 articles on a given topic.
   
7. Social media also allows easy reuse, repurposing and republishing of material. For instance, I have linked to Robert Scoble’s post here and am adding my two-bit to it. Such reference to another article might be equally possible in a magazine. But, the difference is that the reader cannot quickly check the original article with the same degree of ease. Further, new media can be syndicated with great ease. I could have subscribed to Scoble’s posts through an RSS feed and republished them elsewhere.
   
8. New media can be combined or mashed up with other data served by other applications. For example, the publisher of a blog has no control over the advertisements Google serves or the stuff that get displayed in a widget. Such media aggregation is just not possible with traditional media.
   

Besides the above characteristics Scoble listed, here is a few more:

1. Social media has no constraints of circulation and distribution. Anyone with Internet connectivity can potentially access any article published practically anywhere in the world not only in real time but also at ANYTIME as well.
   
2. Old media by virtue of having been around for much longer than “new media” has a lot more material available on historical events, literary works and more.
   
3. In some instances, social media also permits the collaborative creation of material. New media can be edited at anytime. In most cases, social media published can even be reversed or retracted. This is next to impossible in most cases in the traditional context.