Social media is only free because we are the product. As an industry, sites such as Twitter and Facebook rely on advertising to keep them afloat financially and the more users a site can attract, the more it stands to earn.
Twitter has announced that it will shortly become publicly traded, just as Facebook did in 2012. However, in the past year, Facebook has provided Twitter with a clear picture of what not to do as a public company.
Since going public in May 2012, Facebook seems to lack direction as a site. As it adds more features, the social network appears to be trying and failing to beat other websites at their own game.
This June, Facebook began including Twitter-style hashtags, which haven’t caught on. According to analytics from EdgeRank Checker, hashtags on a Facebook post can decrease its popularity by as much as 38 per cent.
In September, Facebook tested a feature that lets videos uploaded through the site play automatically on users’ newsfeeds. This will not apply to outside content, such as videos posted from YouTube.
These extra features are clearly meant to draw in users and the accompanying revenue, but Facebook is only imitating YouTube and Twitter.
For the uninitiated: Twitter allows users to express their thoughts to anyone who cares to read them – provided those thoughts can be conveyed in less than 140 characters.
It’s proven popular with a broad range of people, from those who tweet about philosophy to those who tweet about their lunch, with more than 500 million users.
Advertising on Twitter is a privilege that companies will pay for, and the minimal advertising space is sold to the highest bidder.
“When Facebook went public, it was a bit of a crapshoot,” says Eric Kirzner, a University of Toronto finance professor. “There was no telling what the right price was.”
Facebook has more than one billion users, but Ceren Kolsarici, of the Queen’s School of Business, says Facebook has lost value because of a “failure in strategy.” She says Facebook’s ever-changing interface and dubious protection of user data has diminished its domination over social media.
Facebook’s revenue from advertising alone totalled $1.33 billion in 2012, but despite this the company got off to a shaky start in the market. Though the stock was initially valued at $38 per share, it quickly dropped to $26.81 and has only recently recovered. Without any other precedent for public social media companies, there’s no way to predict how Twitter will fare in the market.
However, if Twitter can avoid the pitfalls that have dogged Facebook, and can be transparent about the value of the company, Kirzner says it’s much more likely to be successful.
Twitter’s advertising is easy enough to skim over, and doesn’t clutter the pages.
As long as they keep from overwhelming their audience with a Facebook-style monstrosity of bells, whistles and ads, Twitter’s reputation as the number one 140-character stream-of-consciousness blog should be safe.
Unpleasant though ads may be, if we want to keep using social media, they’re a necessary evil – especially if we want to tweet about our lunches.