Why am I saying this? It is simple, most of the people on Twitter don’t use Twitter regularly. Twitter growth is slowing down. Only 30% of the members actually do it. Advertising on Twitter gets the same dismal response rates as everywhere else, 3% or less.
While the stats show usage growth of other sites like Facebook and Linkedin the corresponding click through rates on ads placed on these sites is static or decreasing. Most of the people using search don’t click on the ads. Advertising has been the foundation holding up all things social and sooner or later it will collapse.
The fact is that advertising overall is feeling the pitch of the tight economy and increased demand for ROI. When ROI isn’t satisfying the stakeholder well they cut activity, budgets and new initiatives. All things social is brand new and while initially everyone is chasing it like the Holy Grail few find the golden nuggets that lie hidden in the shifting sands.
When The Hype Hits the Wall?
Charles Hugh Smith writes: It doesn’t seem like much of an exaggeration to say that investing and media circles are gaga over social media companies such as Twitter and Facebook. But it isn’t just their demonstrably significant cultural and media impacts that are creating a buzz. It is the prospect that they will generate a new wave of growth and wealth, much as Web 1.0 companies did in the late 1990s. Remember what happen in the 1990’s?
For example, DailyFinance recently reported on claims by some analysts that Facebook could be worth $100 billion by 2015 — fully half of Apple’s (AAPL) $200 billion market cap. The basic idea is that Facebook revenues could soon top $2 billion a year, and with a forward price-earnings ratio of 50, that equals $100 billion in market value. Except, oops, that $2 billion is revenue, not earnings.
Just for comparison’s sake, Apple’s first quarter 2010 revenues were $15.68 billion, generating $3.38 billion in net profit. Based on the expectations of $10-plus billion in net profits annually, Apple’s market cap recently hit $200 billion.
Where are the Golden Nuggets in the Sand?
Apple makes innovative things and sells them for use. Facebook, Twitter and Google create innovative ways that people use to communicate and find things and other people. Google, Facebook and Twitter sell ads, Apple sells products. Each of their overhead cost represents people and technology.
If Google, Facebook and Twitter were able to match buyers with sellers in a non-intrusive way then their revenue could change from selling ads to selling utility to both buyers and sellers. Apple’s products are aimed at increasing utility for buyers.
In economics, utility is a measure of the relative satisfaction from, or desirability of, consumption of various goods and services. Given this measure if ads were replaced by increasing the utility (for a small transaction fee) from buyers and sellers behavior by matching intents (Doc Searls VRM) then the utility value of all things social would increase. Said increase in utility could represent real revenue just like Apple creates and without ads.
Social media won’t collapse but it is likely to evolve into improved utility through innovations. Who will be first?