Since the 2004 launch of Facebook, social media has exploded with networks going live seemingly every day. While some social networks have experienced vast growth, most have failed as ideas have become a dime a dozen. For the platforms that have succeeded, they still face a major issue: how to monetize their growing user bases. Facebook went public in September of 2012 but its stock quickly fell 47% as investors realized that the company was not generating sustainable profits from advertising, which is its main revenue source (Vardi Forbes). Twitter went public in November of 2013 and while the stock performed much better than Facebook’s, it was reported that the company had not turned a profit in its seven years of operation. Twitter earns 89% of its revenue from advertising, but still has not managed to master ads as it has lost money every year (Benoit Wall Street Journal). The big question then is when will social media understand advertising as other media outlets have, and when will they generate profits to illustrate they deserve to be in the same conversation with other tech giants such as Google?
Despite their initial lack of success with ads, the most popular social platforms could turn out to be extremely lucrative for the companies that operate them and the advertisers who wish to connect with their users. Over the past year, for instance, revenue per visit to Tumblr has grown 340%, Pinterest witnessed a 244% increase, Twitter a 131% jump, and Facebook a 72% boost (Hof Forbes). Advertisers are reaping the benefits of social ads as a result of being able to directly target their markets based on personal information they purchase from the different networks. Through features such as targeted Facebook ads and promoted Twitter tweets, advertisers are able place relevant ads on user’s personal pages. Users are also embracing multiple social networks, as 42% of online adults now use two or more social networks (Pew Research). This illustrates that the networks must adapt with their users, and figure out how to allow advertisers to strategically place ads on all networks in an aesthetically pleasing manner.
While Facebook struggled in its early days as a publicly traded company, the company has since proved to be as valuable as it was made out to be in its IPO by substantiating its value to advertisers. Revenues in 2013 were $7.87 billion, a 55% increase from 2012 and the stock finished at an all time high. All of this hype can be attributed to mobile platforms, as Facebook now earns 53% of its total revenue from mobile ads. In fact, media experts have begun to call Facebook a mobile company, as their mobile monthly users have increased by 39% compared to the 16% increase from desktops. Facebook has also amassed over one million advertisers, illustrating the trust they have built with companies looking to engage with their 1.23 billion monthly active users (Edwards Business Insider).
Though this growth is remarkable, advertisers have not completely been sold on Facebook’s staying power. A recent study by digital consultancy iStrategy Labs has revealed that more than 11 million high school and college users have left the network since 2011. Facebook, and social networks in general, have been able to augment their user bases massively as a result of appearing “hip,” which can be attributed to appealing to the younger generation. Without that appeal, these companies could potentially appear as a fad that will eventually fade. Facebook itself has acknowledged the problem; “We did see a decrease in teenage daily users during the quarter, especially younger teens,” said Facebook CFO David Ebersman (Matthews Time). Nevertheless, while teens are leaving the platform, other age groups have continued to expand rapidly. Pew Research reports that 71% of online adults are now on Facebook. As long as there are individuals, regardless of age, spending money as a result of ad impressions, advertisers are content.
As every major social network has begun to roll out ads to drive revenue, users have not fled as analysts initially expected. In fact, the top social networks have continue to grow at rates that are unmatched by any other field in media. The following percentages indicate the increase in total minutes spent on the networks from 2011 to 2012: Facebook 61%, Twitter 48%, Foursquare 154%, Pinterest 6,056%, and Tumblr 108% (Nielson 2012). These growth percentages demonstrate that each social network has a value to not only their users, but also advertisers who wish to capitalize on the easy access to perspective clients. As user bases continue to grow and the respective social platforms supply advertisers with the tools they need to be successful, the next social network will shortly go for their IPO, and investors certainly will not want to miss out.
Works Cited
Benoit, David. "Twitter's IPO: What You Need to Know." The Wall Street Jounral. N.p., 6 Nov. 2013. Web. 01 Feb. 2014. <http://blogs.wsj.com/moneybeat/2013/11/06/twitters-ipo-what-you-need-to-know/>.
Duggan, Maeve, and Aaron Smith. "Social Media Update 2013." Pew Research Center's Internet & American Life Project. Pew Research Center, 30 Dec. 2013. Web. 01 Feb. 2014. <http://pewinternet.org/Reports/2013/Social-Media-Update.aspx>.
Edwards, Jim. "Facebook Shares Surge On First Ever $1 Billion Mobile Ad Revenue Quarter." Business Insider. Business Insider, Inc, 29 Jan. 2014. Web. 01 Feb. 2014. <http://www.businessinsider.com/facebook-q4-2013-earnings-2014-1>.
Hof, Robert. "Pinterest, Twitter And Tumblr (Yes, Tumblr!) Are Starting To Steal Revenues From Facebook." Forbes. Forbes Magazine, 27 Jan. 2014. Web. 01 Feb. 2014. <http://www.forbes.com/sites/roberthof/2014/01/27/pinterest-twitter-and-tumblr-yes-tumblr-are-starting-to-steal-revenues-from-facebook/>.
Matthews, Christopher. "More Than 11 Million Young People Have Fled Facebook Since 2011 Comments." Time: Business & Money. Time Magazine, 15 Jan. 2014. Web. 30 Jan. 2014. <http://business.time.com/2014/01/15/more-than-11-million-young-people-have-fled-facebook-since-2011/>.
State of the Media: The Social Media Report 2012. Rep. The Nielson Company, 04 Dec. 2012. Web. 01 Feb. 2014.
Vardi, Nathan. "Ten Ways Twitter's IPO Didn't Turn Out To Be Like Facebook's IPO." Forbes. Forbes Magazine, 07 Nov. 2013. Web. 01 Feb. 2014. <http://www.forbes.com/sites/nathanvardi/2013/11/07/ten-ways-twitters-ipo-didnt-turn-out-to-be-like-facebooks-ipo/>.
While Facebook struggled in its early days as a publicly traded company, the company has since proved to be as valuable as it was made out to be in its IPO by substantiating its value to advertisers. Revenues in 2013 were $7.87 billion, a 55% increase from 2012 and the stock finished at an all time high. All of this hype can be attributed to mobile platforms, as Facebook now earns 53% of its total revenue from mobile ads. In fact, media experts have begun to call Facebook a mobile company, as their mobile monthly users have increased by 39% compared to the 16% increase from desktops. Facebook has also amassed over one million advertisers, illustrating the trust they have built with companies looking to engage with their 1.23 billion monthly active users (Edwards Business Insider).
Though this growth is remarkable, advertisers have not completely been sold on Facebook’s staying power. A recent study by digital consultancy iStrategy Labs has revealed that more than 11 million high school and college users have left the network since 2011. Facebook, and social networks in general, have been able to augment their user bases massively as a result of appearing “hip,” which can be attributed to appealing to the younger generation. Without that appeal, these companies could potentially appear as a fad that will eventually fade. Facebook itself has acknowledged the problem; “We did see a decrease in teenage daily users during the quarter, especially younger teens,” said Facebook CFO David Ebersman (Matthews Time). Nevertheless, while teens are leaving the platform, other age groups have continued to expand rapidly. Pew Research reports that 71% of online adults are now on Facebook. As long as there are individuals, regardless of age, spending money as a result of ad impressions, advertisers are content.
As every major social network has begun to roll out ads to drive revenue, users have not fled as analysts initially expected. In fact, the top social networks have continue to grow at rates that are unmatched by any other field in media. The following percentages indicate the increase in total minutes spent on the networks from 2011 to 2012: Facebook 61%, Twitter 48%, Foursquare 154%, Pinterest 6,056%, and Tumblr 108% (Nielson 2012). These growth percentages demonstrate that each social network has a value to not only their users, but also advertisers who wish to capitalize on the easy access to perspective clients. As user bases continue to grow and the respective social platforms supply advertisers with the tools they need to be successful, the next social network will shortly go for their IPO, and investors certainly will not want to miss out.
Works Cited
Benoit, David. "Twitter's IPO: What You Need to Know." The Wall Street Jounral. N.p., 6 Nov. 2013. Web. 01 Feb. 2014. <http://blogs.wsj.com/moneybeat/2013/11/06/twitters-ipo-what-you-need-to-know/>.
Duggan, Maeve, and Aaron Smith. "Social Media Update 2013." Pew Research Center's Internet & American Life Project. Pew Research Center, 30 Dec. 2013. Web. 01 Feb. 2014. <http://pewinternet.org/Reports/2013/Social-Media-Update.aspx>.
Edwards, Jim. "Facebook Shares Surge On First Ever $1 Billion Mobile Ad Revenue Quarter." Business Insider. Business Insider, Inc, 29 Jan. 2014. Web. 01 Feb. 2014. <http://www.businessinsider.com/facebook-q4-2013-earnings-2014-1>.
Hof, Robert. "Pinterest, Twitter And Tumblr (Yes, Tumblr!) Are Starting To Steal Revenues From Facebook." Forbes. Forbes Magazine, 27 Jan. 2014. Web. 01 Feb. 2014. <http://www.forbes.com/sites/roberthof/2014/01/27/pinterest-twitter-and-tumblr-yes-tumblr-are-starting-to-steal-revenues-from-facebook/>.
Matthews, Christopher. "More Than 11 Million Young People Have Fled Facebook Since 2011 Comments." Time: Business & Money. Time Magazine, 15 Jan. 2014. Web. 30 Jan. 2014. <http://business.time.com/2014/01/15/more-than-11-million-young-people-have-fled-facebook-since-2011/>.
State of the Media: The Social Media Report 2012. Rep. The Nielson Company, 04 Dec. 2012. Web. 01 Feb. 2014.
Vardi, Nathan. "Ten Ways Twitter's IPO Didn't Turn Out To Be Like Facebook's IPO." Forbes. Forbes Magazine, 07 Nov. 2013. Web. 01 Feb. 2014. <http://www.forbes.com/sites/nathanvardi/2013/11/07/ten-ways-twitters-ipo-didnt-turn-out-to-be-like-facebooks-ipo/>.
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