International Digital Marketing

With more than 425 million monthly active users utilizing Facebook mobile products in December 2011 only, the social networking platform is finally focusing on mobile and tablets in 2012. Wise decision, since not only Smartphone market is increasing, but according to a research by BI Intelligence global tablet sales will reach 500 million units per year by 2015 – exceeding the number of PCs currently sold per year (~360 million).

Facebook has mentioned that as part of its mobile monetisation strategy it will start using “sponsored stories” in mobile users news feed. But is that really all?

Facebook – more than a simple platform

Until now Facebook has been focusing on normal web strategy and constant updates that seem to make its users’ life more difficult. But hate Facebook or not, the social network is becoming much more than just a platform. Facebook is on its way to become its own Internet portal by using Facebook IDs as an online passport to various products and services hosted on its own developer platform.

Facebook’s inter-connected business model has worked well and the company has created its own successful ecosystem. The social network has made great progress especially with social gaming, and its close relationship with Zynga (FarmVille, Mafia Wars) has been very beneficial for both.  F-commerce is also blooming with companies trying to get more touchable return on their social media investment and Facebook has even launched its own online virtual currency called Facebook credits. They allow Facebook developers to offer in-app purchases with Facebook cutting 30% of the revenue. A similar model Apple uses in its App store.

Facebook mobile monetisation strategy

Now there is the problem. Facebook needs to establish a proper mobile monetisation strategy, yet the native app store model is very restrictive. For example, Apple takes off 30% revenue of the apps sold, and insists on maintaining control of the iOS payments process. This means that Facebook cannot take advantage of ‘in-apps payments’: a revenue generated by its current ecosystem.

What comes to f-commerce, according to a study by Shopatron, most of the tablet owners find shopping with the tablet engaging, and the conversion rate from tablets is much higher than conversion rate from mobiles or even PCs. If Facebook wants to expand its F-commerce business, it needs to offer companies a way to create a tablet optimized social shopping experience, and lure them away from iPad apps.

Will Facebook abandon App store?

Probably not. The social network is not likely to ditch the existing native apps, because they already have a large user base and work well with the different OS. However, Facebook has a team (so called Project Spartan) playing with HTML5 technology, which is a coding language that allows companies to develop one mobile / tablet app that is suitable for any device or operating system. According to a research firm Strategy Analytics, 1 billion HTML5 compatible phones are to be shipped in 2013(up from 336 million in 2011), which brings interesting possibilities.

If the company starts creating its own apps without registration fees and payment restrictions, it is free to monetise via Facebook Credit and in-apps payments. Quite a significant move, since if Facebook starts developing HTML5 apps many companies and its partners are likely to follow. Which certainly will not make Apple happy.

We will see. There are many other possibilities for Facebook in mobile space, such as augmented reality with facial recognition, and the company also needs to consider very well whether it is worth making another powerful enemy, especially when iPad3 is coming up. If Facebook starts competing with Apple’s App store, their relationship status is likely to become “complicated”.

After the recent launch of Google+ pages, companies and marketers around the world are debating whether it is worth investing money and time in another social network especially taking in account the effort an international social media strategy requires. On the other hand, there has also been discussion whether it would be worth ditching the website and replacing it with a Facebook page.

It takes a bit of convincing to encourage top managers to invest in social networks, but once you have started, engage successfully with your audience, and see referrals and leads coming in – are you able to stop?

Growing dependency on Social Network platforms

How dependent are we on social networks? Many companies are using Twitter for customer service, communicate with consumers through Facebook newsfeed rather than newsletters and news articles, and promote in TV commercials their Facebook page instead of the official site. Also, in place of the own database acquired via website, brands are directing the communication to databases owned by social networks.

For some companies, such as Zynga (FarmVille, Mafia Wars), the situation is a bit more complicated. Even if the interconnected business model has allowed the social gaming company, which has 60 million active users in 166 countries, to grow faster, it is highly dependent on Facebook’s platform and user base. “We generate substantially all of our revenue and players through the Facebook platform and expect to continue to do so for the foreseeable future. Any deterioration in our relationship with Facebook would harm our business”, says Zynga’s IPO. This means that despite Facebook policy changes that have been negative for the business, Zynga cannot leave the platform in close future even if it would try to diversify to other networks, such as Google+.

Co-dependent Business Model

According to Kevin Werbach, a Wharton legal studies and business ethics professor, Zynga’s dependency on Facebook could show a preview to a dominant business model for the future digital world, that revolves around what he calls “real-time value webs.”

“We’re seeing that model play out today with the rise of digital platforms such as Facebook, Google, Apple and Amazon.com. They are offering services to customers directly, but also providing the infrastructure for ecosystems of other companies,” Werbach states. “In a digital era, everything is potentially interconnected. Companies are no longer isolated islands.”

It is not obvious whether in five years the users will still visit the company websites or whether they will only use social networks and apps to check the latest news and offers. The social networks have re-designed and developed their businesses as platforms, and offer a starting point for emerging companies willing to grow fast. The same trend goes beyond social media: app developers are reliant on iPhone OS and Android, and Japanese app developers are dependent on cell phone carrier NTT DoCoMo.

Worldwide Social Network referrals

But which social network brings the most traffic? In Q3 2011 Facebook was the biggest traffic driver worldwide with 63.5% of the social network referrals, while Google owned Youtube followed it with 21.2% of the referrals.

Twitter and StumbleUpon followed with 6.3% of the social media referrals each, Reddit drove 1% of the traffic to the websites, but Google+ only reached 0.2%. However, to put it in perspective, even if the new social network was launched just few months ago, Google+ brings 2 times more referrals than Delicious, 4 times more referrals than Flickr and 6 times more referrals than Mashable.

The small amount of Google+ referrals might also be due to the lack of brand presence and brand pages on the platform, and the situation may change in few months since Google has now enabled Google+ pages for companies. The power balance is likely to get even more interesting, since according to Spotify investor and former Facebook President Sean Parker, the influencers are now leaving Facebook and moving to other social networks.

Dependency between Social Networks

Despite of the fierce competition between different social platforms, interestingly there seems to be also certain dependency between the  networks. For example, 28% of the traffic to Google+ comes from other social networks. To put this in context, 6% of the users go to Facebook from other social platforms and 22% of the traffic arriving to YouTube comes from social. Twitter has the highest dependency compared to other social sites with 32% of its traffic coming from the other social networks.

It might be that in the future companies and social networks become so interconnected that neither can survive without each other. Or then we hopefully find a more convenient business model.

A recent analysis by Goldman Sachs Investment has estimated Facebook’s value to be 50 billion dollars. Twitter’s estimated value reached 4 billion dollars in January 2011 and the business network LinkedIn is worth more than 2 billion dollars.

But these three are not the only social networks that have reached astronomical values. There are more members in the billionaires’ social club such as Zynga and the most recent Groupon.

What all these companies have in common is their youth. All these platforms are less than 10 years old, which demonstrates how incredibly fast they have grown and obtained their high stock value. While many investors have got rich betting on them, it might well be that the next bubble to burst is social networks. Why?

Unfamiliar business model

The social media companies have surely known how to build an empire formed by hundreds of thousands of users all over the world. Only Facebook has more than 500 million users, Twitter is close to 200 millions of users and LinkedIn has already more than 80 million valuable business contacts. Zynga on the other hand receives daily millions of online players and Groupon has a database of more than 35 million users happy to receive offers of the day to their inboxes.

However, in spite of these unusual figures, the majority of the social media companies are still investigating how to receive economical benefits of their large user base and with different results. LinkedIn gets benefits from its own users who agree to pay the premium access with bigger functionalities than basic account, while Groupon gets a commission for each client who buys. But Facebook, Twitter, Zynga and most of the other social networks trust in their advertising income.

Return of investment: Advertising

But is targeted advertising in social networks that effective? According to Jeffrey I. Cole, the director of the Center for the Digital Future at USC’s Annenberg School for Communication & Journalism, “users express strong negative views about online advertising, but they still prefer seeing ads as an alternative to paying for content. Consumers really want free content without advertising, but ultimately they understand that content has to be paid for — one way or another.”

So it is not wanted, yet tolerated. There are also various apps for users to remove advertising completely from the social media platforms. Yet effective or not, it seems like at least Twitter and Facebook do not have a choice. According to the 2010 USC Annenberg Digital Future Study on Twitter, a whopping 0% of the interviewed users said they would be ready to pay for the platform. And it is not difficult to imagine that a similar percentage would be ready to pay for Facebook (and their current slogan on sign up page is effectively “Sign up. It’s free and always will be!”).

Question is: will companies keep investing on the social network ad space in the future, if these advertisements are blocked or ineffective?

Return of Investment: Users

How to measure social media? Unlike in any other business area: no one really knows. People say they do, but to be honest…if you want a straight answer what your ROI on social media campaign or Facebook group is or will be, you are likely to get a following conversation:

“There are so many different ways and tools to measure social media, it really depends what your goals are.”

“Yes but how many leads and sales this campaign is going to create?”

“Human interaction is so difficult to estimate… Right now I can’t tell you the exact figure you will have, but  in the end of the campaign we can tell how many more people “liked” your brand or talked about you”

“Yes, but will I know how many of these people actually bought my product?”

“Well…”

Do not get me wrong, social media is a very effective communication and customer service tool yet very, very difficult to measure. Without a clear idea of ROI, it will be harder to convince investors or companies to stay if they lose confidence on the platform and want to abandon the sinking ship.

Dot com – fever?

Previously mentioned social networks are the biggest ones with the largest number of users, yet creation of different types of social networks has boomed all over the globe, waking up interest of investors of all sizes. They are investing on a new virtual business model, living in some way the dot com company fever, in which the big investments that promised fantastic ROI turned into nothing when the bubble exploded.

Constantly changing virtual world

This kind of risks could happen in social networks, because there are already examples how big virtual companies can fall quickly when new concepts and improved versions of the same model arrive.

Examples of this are the AOL and MySpace, companies who were in their time the little favourites of the Wall Street and “going to conquer the virtual world”. Now their current economical value is just a fraction of the value they had in their moments of glory. The brand lost its value, then the confidence of the investors then the market to new comers such as Facebook. MySpace France office close down already few years ago and now even German office is shutting down, even if the platform is trying to re-launch itself with a new image.

At present, almost every marketer “likes” Facebook, however there was a time when also Second Life was supposed to become “a must” and brands invested great amount of money to get on board. Where is it now? I am not saying brands should not use Facebook and Twitter or other social networks, in the contrary they definitely should. It is just a word of warning to potential investors to not to get too excited on new virtual business models without certain amount of caution. Many social media companies can for sure be easily substituted by new concepts or new technologies in the constantly changing virtual world.

Right now Facebook, Twitter and other social media platforms are powerful tools, but let’s give the new generation some time and – POP.