By B.J. Mendelson
But, I also worry about startups. Especially startups in the social media space. The funding for these companies is plentiful because there is a serious bubble, and the only people who are going to survive it are the wealthy idiots who like to publicly proclaim that there is no bubble. Investors are like herd animals, and none of them want to look stupid, so of course they’re going to say that. If they didn’t, how would they make their money back?
To be clear: It’s not that the ideas behind these startups are bad, but you’re talking about a space that’s entirely dependent on advertising for revenue, and one that is completely monopolized by a few key players. On top of that, you have legions of knowledge workers, who were all laid off during The Great Recession, running around pretending to be “social media experts.” So there’s this whole deeply rooted (and false) mythology that blankets everything here.
Between these two factors, the social media industry is boned, and you should proceed very carefully if you’re thinking about diving in.
The dirty secret you all probably know already? Although the tools are cool, and you can do cool things with them, “cool” doesn’t equal business model. I’m not saying you can’t make money, and I’m not saying someone can’t make money on a place like Facebook, but it’s extraordinarily difficult to replicate what works in a way that can be standardized and executed in the same way you would buy a radio spot.
And that lack of standardized execution means the results vary so wildly that it’s hard to sell businesses and others to invest their advertising money given less expensive options that yield better results in a down economy. Given that almost all of these companies are dependent on advertising revenue, I hope you can see the problem here.
Consider this: InsideFacebook reported in March that there were 42 million Facebook pages. Just this week, Facebook announced that 500,000 of those 42 million pages used the promoted post feature, and of that 500,000, 70% came back to promote another one. Facebook did not mention how many pages existed on the service when they made this announcement. Think about this. 500,000 out of 42 MILLION pages used the promoted post feature. 70% of those 500,000 pages came back to do it again. That’s 350,000 pages out of 42 MILLION. We’re not talking huge numbers here. This number is slightly larger than the largest audience Marc Maron, of the awesome WTF Podcast, told me he received for his most popular episode when I interviewed him for “Social Media Is Bullshit.”
Also, you have to wonder if Facebook is being honest about the number of people who actually do another sponsored post after the first one. Especially because you’re asking people to pay for accessing people who already expressed an interest in them. It’s asinine at best, deeply cynical and manipulative at worst.
As I documented in the book, social media is a total loss leader for large corporations, too. They’re more or less there out of obligation because journalists need pageviews to survive and nothing racks up the pageviews like a post about an anti-semitic Arby’s employee on a Twitter bender. That means the people with the deepest pockets don’t really want to spend any money, and they don’t have to since setting up and running an account is free.
So, I hope you can see why I’m worried. And what should you do if you run a social media startup? Get out while you can. Seriously. Get out, unless you’ve already figured out a way to charge people for what you’re offering, or make money in another way that doesn’t involve any sort of advertising.
The space is too crowded, the business model is busted, and there are few instances where social media has proven to do much of anything it’s been advertised to do. Unless you count stunts like giving shares to a certain pop star, having them sign an NDA, and then racking up users by trotting that person out to the press while the celeb plays up how much they like your service.
I urge you, my strange and interesting friends in the social media startup space, to think carefully and critically about what you’re working on and what it does differently from your entrenched competitors. And, if you can’t find an alternative business model that’s not dependent on advertising or ridiculous schemes à la Ralph Kramden? I’m not the only one who should be worried.