Decoding the new economy

A tale of two social media networks

Facebook and Twitter are proving to be very different business model

This week showed the disparate

At the time of its IPO in February 2012, Facebook claimed to have 845 million active monthly users. Eighteen months later at the time of their stock market float, Twitter boasted a more modest 232 million.

This week Facebook reported 1.19 billion monthly active users while Twitter still languishes at 300 million, a number that disappointed the market and saw the smaller company’s shares drop 11% after their quarterly earnings announcement.

Even more worrying for Twitter, and competing networks like Google, is Facebook’s success in mobile services with 874 million people accessing the service through their smartphones every day last quarter.

So successful is Facebook in engaging roaming users that some pundits are predicting the company’s Instagram product may well overtake both Twitter and Google in mobile advertising revenues over the next few years.

More concerning for Twitter is the company is still not profitable – of the business’ $957 million gross profit, an astonishing $854 million was eaten up in administration and sales costs which indicates their overheads are in need of some dramatic pruning.

What is clear that Facebook and Twitter have very different user behaviour and, as a consequence, the revenue models are not the same. Twitter is never going to be Facebook.

So the question for Twitter is what does it want to be? Certainly the current quest to drive up revenues seems doomed. Perhaps it’s time to accept the company is a smaller operation and start to plan accordingly.

Social media and the changing media landscape

A Reuters report looks at the changing media landscape and how the older news industries’ decline has some way to go yet.

“We seek news on Twitter but bump into it on Facebook” points out the Reuters’ 2015 Digital News Report in its analysis of global media consumption.

The broad trends from surveying over 20,000 online news consumers in the US, UK, Ireland, Germany, France, Italy, Spain, Denmark, Finland, Brazil, Japan and Australia are clear – social media is becoming the main way people are finding their news while television is slowly declining.

Probably most concerning for the television networks how younger viewers have turned away from TV with only a quarter of those aged between 18 and 25 tuning in as opposed to two thirds of those aged over 65.

Given the aging of television network audiences it’s not surprising that last week Australia’s Network Ten, part owned by Lachlan Murdoch, found a lifeline from the country’s main cable network as the broadcaster is finding revenues declining.

The question is how long advertisers are going to stick with television as audiences increasingly move online creating a revenue gap estimated by analyst Mary Meeker to be worth around thirty billion dollars a year.

For the moment, the great hope for the online world is Facebook with Reuters finding the service is dominating users’ time. In that light it’s not surprising the company has such a huge market valuation.

The competing social media services are still facing challenges, particularly with Twitter showing a far lower level of penetration with the general public, leading Harvard professor Bill George to speculate the company risked becoming the new BlackBerry.

While the online services struggle for supremacy and television slowly declines, the real pain continues to felt by the newspapers who continue to find their relevance erode and few of their readers prepared to pay for their content.

The Reuters report confirms the trends we already know while giving insights into the unique peculiarities of each market.

Facebook’s and Google’s enlightened self interest

Facebook and Google both put their users first in their latest updates. It’s something other business should consider.

Over the last few weeks much has been written about Google’s mobile search update that went live on Wednesday, some said it would be the death of small business on the internet while others claimed it would be the end of corporates online.

While all the focus has been on Google’s search changes Facebook quietly made a change that will probably be more vexing for many businesses.

Both Facebook and Google are struggling with making their services more useful for users, with the Google changes the intention is to make search on mobile devices more useful in giving preference to websites that work on smaller screens.

In a post on Google’s webmaster blog, Developer Programs Tech Lead Maile Ohye answered the basic questions about the search engine changes which dispelled much of the hysteria and myths about the update. The main point of Ohye’s post is that Google want to show users useful information.

Facebook have a similar problem, they have to balance the often competing interests of their users and advertisers with the main aim being keeping visitors on their site for as long as possible.

The objective of keeping users engaged is the reason for a series of tweaks Facebook announced this week that change the newsfeed visitors see.

The goal of News Feed is to show you the content that matters to you. This means we need to give you the right mix of updates from friends and public figures, publishers, businesses and community organizations you are connected to. This balance is different for everyone depending on what people are most interested in learning about every day. As more people and pages are sharing more content, we need to keep improving News Feed to get this balance right.

Facebook are putting their users priorities first in making sure the news feed is interesting and relevant, which the company believes will entice visitors to spend longer on the site and make advertising more attractive.

If it works then it’s a win for Facebook, their users and those who pay to advertise on the site. Again though, the losers are the companies and brands not advertising who thought they could get views by the quality of their content.

Unless the content is very good, those companies not paying Facebook are in for more disappointment as their reach collapses even further than its current pathetic rates.

Google’s change too is something that puts users first; rather than dumping mobile web surfers onto an unreadable page, they are making sure people get to sites that are useful.

In many ways Google is only encouraging what has been best practice for at least five years, that every site should work equally well on mobile devices as they do on desktop computers.

What Facebook and Google are showing us is the value of putting users’ needs first. If your guests are happy then your business model has a much better chance of succeeding, regardless of who the eventual customer is.

Making business more user friendly should be a priority for all companies in a competitive world.

Beating Facebook envy

Being behind the cutting edge could be a benefit for a business or nation suggests one software executive

Do economies and businesses need to be at the cutting edge of tech or is staying behind the early adopters the key to get the most out of technology?

“Everybody has Facebook envy,” says Oracle’s Neil Mendelson, the company’s Vice President for Big Data, about business life in Silicon Valley.

Mendelson was talking about how the Silicon Valley business environment is a high pressure bubble where the focus on shipping products is different from the needs of users outside the tech sector.

“The farther out you go from Silicon Valley the more people fundamentally understand the value is in getting something out of it,” says Mendelson who was speaking at an executive lunch in Sydney earlier today.

“Being a late follower has an advantage because companies aren’t going to get fired up about this Facebook envy trying to assemble a solution but rather they can get something out of the cloud that will deliver value.”

The Minitel problem

An example of being too far ahead could be Minitel, a text based network operating across France between 1982 and 2012.

Minitel was a visionary project intended to deliver services similar to the Internet through a dedicated terminal, however the open nature of the net made the French service less than attractive and eventually France Telecom wound the service up in 2012 as user interest evaporated.

How much the French bet on Minitel held the nation’s digital economy back is open to question, the World Economic Forum lists France as 25th in the world in its 2014 Networked Readiness Index however the gap between most of the top nations is quite close.

Falling off the bleeding edge

The idea that the best return on a tech investment is by being behind the ‘bleeding edge’ isn’t new, for years the advice from serious computer experts was to never buy a Microsoft product until version three came out however there is a risk that the early adopters might get an early advantage over the slow movers.

Another risk is missing out altogether; as Oracle’s Australian manager Tim Endrick told the room, “our experience is organisations are doing two things; they are either managing disruption and/or they are leveraging their structures to innovate. Those who are sitting on the back step doing nothing are in serious trouble.”

So while there are risks with being too an early an adopter of new technology, it’s important to be aware of the trends and tools that are changing business.

With the pace of change in both technology and industry accelerating, it may be that staying too far behind the cutting edge risk falling off altogether. Maybe it’s worth being envious of Facebook.

Advertising and the mobile, digital consumer

Bigger smartphones are redefining media consumption, how does Google and traditional media companies respond to this?

Last week Google and Facebook announced their quarterly results with the search engine giant continuing its worrying slowing of advertising revenue. The respective changes of the two online services show how online advertising is changing.

While Google slows, Facebook is showing accelerating growth for its advertising, driven mainly by mobile users, illustrating the shift in internet usage from desktops to smartphones.

In its 2014 New Digital Consumer report, market research company Nielsen observed that US consumers in 2013 were spending more time accessing the internet on their smartphones than on personal computers; PC use had fallen seven percent to 27 hours a week while mobile use had surged 40% in 2013 to 34 hours.

Television still remained dominant with the combination of live and time shifted TV viewing making up 144 hours of the average American’s week, although it did fall slightly.

Those figures are a year out of date and there’s no doubt the numbers have accelerated since then. One of Tim Cook’s triumphs at Apple has been the release of the iPhone 6 and the larger form factors in the current generation of smartphones is a response to consumers’ demand to watch video on their devices.

Bigger Android, Windows and Apple smartphones will only seen even more people using their mobiles to watch video and surf the web.

Which puts Google’s predicament in sharp focus; we are definitely in the post-PC world yet their revenue still overwhelmingly comes in from desktop users while Facebook’s is increasingly coming from mobile consumers.

A strength Google has is that its revenues still dwarf the social media upstart’s – Google’s income is currently six times greater and its gross profit margin doubles that of Facebook’s – giving it plenty of leeway to change.

The question is where do the new revenues come from? Probably the biggest opportunity Google missed was in replacing the Yellow Pages franchises with their own local small business listings with Google Your Business (aka Google Place and Google Plus for Business) being lost in a confused and bureaucratic corporate strategy.

Compounding the problem for Google in the small business space is Apple’s entry and while Apple Maps is no contender against Google’s far superior product, an integration with Apple Pay would give Apple far more rich data to enhance listings with – not to mention more of an incentive for merchants to sign up.

With the changing web, Google are going to have to change as well. If advertising is going to remain the mainstay of their business then the company needs to find a way to capture smartphone users.

It could be worse however, a report from consulting firm Strategy Analytics estimates print media’s share of advertising revenue fell another seven percent this year. Time is running out for newspapers.

While print is ailing, the advertising battleground is mobile digital although TV still dwarfs the market. How this evolves in the next five years will define the next generation of media tycoons.

Measuring Facebook’s network effect

Has Facebook really been responsible for creating over four million jobs?

It’s always best to treat a business’ or industry group’s claims of economic benefits with a grain of salt and the survey released yesterday by Deloitte on measuring Facebook’s effects on the global economy is a good example.

Facebook’s Global Economic Impact looks at what the social media service added to the world’s economy and finds the company created 4.5m jobs and $227 billion of value in 2014 outside of its own operations.

Deloitte’s analysis breaks down Facebook’s effects into three general categories; platform effects, connectivity effects and market effects.

In coming to their figures, Deloitte’s researchers further broke the numbers down into the direct revenues of businesses using Facebook, the indirect impact upon suppliers and the ‘induced effect’ of employee spending patterns.

The basic formula, although the methodology gets quite complex in extrapolating the value added, is described in this illustration.

The main areas of contention are the employment multiplier effect, which Deloitte marks at 3.1 in Brazil down to 2.1 in the UK with the United States coming in at 2.7, and the valuation of individual Facebook actions.

For example here is the description of how companies’ page engagement is valued;

Sales from Page engagement are estimated as
a product of the total sales of businesses with
Pages and the sales uplift estimated due to their engagement on Pages (see section A3 for how elasticities are estimated by econometric methods). The total sales of the businesses that have a Facebook Page are estimated using the revenues of the private sector in the economy based on national statistics. Survey evidence is then used on the percentage of businesses with a Page in the US and the UK.

For the rest of the world, the value of a liking action of a Page is estimated using relative GDP per capita of each country to the UK and USA to reflect the local economic conditions.

The gross revenue supported by Pages is then the product of the number of Pages liked and the value of a liking action of a Page.

The key here is the word estimated, there’s no doubt it’s in the interests of Facebook, the marketing agencies and the staff employed to manage social media to overstate this effect; it’s an arbitrary at best measure.

Marketing is claimed to be the most valuable aspect of Facebook, accounting for about two thirds of the service’s claimed economic value with a $148 billion contribution. Deloitte defines marketing effects as “the impact from businesses’ use of Facebook marketing tools to drive online and offline sales, and to increase awareness of their brand.”

Again this is subject to a number of arbitrary definitions and guesstimates which take us into the tricky area on measuring social media’s Return On Investment.

The reason why the numbers don’t pass the smell test is because of the sheer size; in Australia for instance the company’s effects are valued at $5.7 billion and employment generated at 63,000 workers. If we fully apply the 2.6 multiplier Deloitte attributes to the country this would suggest over 17,000 Australian workers are directly employed full time in running Facebook related tasks.

While it’s hard not to be sceptical of Deloitte’s numbers, it certainly is true that social media platforms have opened new roles for administrators, developers and other staff. We just need to be a touch cautious of overstating the benefits.

For businesses, probably the best lesson from Deloitte’s survey is to measure the genuine effects of social media on a business there have to be properly thought out measures and objectives. Guesstimates are not good enough.

Tag: Facebook

Beating Facebook envy

The Minitel problem

Falling off the bleeding edge

Similar posts: