Multiple Models for Social Media Businesses

No single strategy guarantees social media success. Twitter’s recent relaunch mirrors some of Digg’s tactics, but social services — or recent hints of them — from players like Google, Apple, and Yahoo take entirely different approaches. But while there are multiple paths to social success, the one a company chooses tends to align it with a particular revenue model.

More Than One Way to Win

Last week, Twitter showed off a major overhaul of its site, which sponsored a “final post” by its former chief engineer. In the post, Alex Payne lamented that Twitter was abandoning its original “decentralized” set of services both users and developers could profit from. In its place went a more “centralized” broadcast-media-style model. Indeed, in efforts to broaden its audience and hold onto its users a little longer, Twitter risks cannibalizing the ecosystem of developers and applications that have grown up around it — companies like TweetDeck, Seesmic, and Bit.ly — by replacing their value-added features with its own.

In contrast, Facebook has “opened up” a bit. The social giant initially offered apps vendors like Zynga, Flixster and Living Social access to its audience and their social graphs, so long as the apps lived in Facebook. With initiatives like Open Graph and Facebook Connect, Facebook is giving third-party sites and apps access to services like common sign-in and message-exchange. Its goal is to establish those services as standards, locking out competitive offerings and enhancing the services’ utility for both users and developers via scale and scope.

Whether you call these approaches centralized vs. decentralized, closed vs. open or site vs. services, they don’t have to be mutually exclusive, and neither one always wins. MySpace initially thrived in part by offering its users the chance to embed photos and videos from other social media sources; now it’s collecting feeds from Twitter and Facebook. Whether MySpace succeeds in regaining user attention or not, its heavily site-centric strategy steers it towards a specific revenue strategy.

Sites, Services, Dollars and Cents

With a site-centric strategy, you’re in the eyeball business. That means you’re either selling to your audience or selling the audience itself (to advertisers, marketers, retailers). And either way, a social media site needs a big enough audience — even if it’s within a desirable, targetable subset — to attract advertisers or produce profitable volumes of sales. Both Twitter and Digg are redesigning their sites to appeal more to broad audiences: They recognize that there are far more content consumers than creators. At the same time, they both need to service the content creators or broadcasters. It appears that, in contrast to Digg, Twitter’s new content consumption features — embedded media, multiple panes, lists for filtering — have encouraged rather than alienated its power-user communicators. But while Twitter’s doing carriage deals with content companies and marketers, it still lacks a robust marketing and advertising platform.

If you’re primarily in services, you have three revenue strategies to chose or to mix and match:

  • Licensing: Enterprise applications have tapped social media technologies to create traditional or software-as-a-service businesses for companies like Salesforce.com, Box.net and Jive. Likewise, Amazon and others offer cloud-based hosting and storage in support of social media applications and functions. But it’s rare to see technology companies pay to license APIs and social media services.
  • Harvesting: This is social media’s big undelivered promise, and the real reason for Google to keep on trying. In theory, the information gleaned from community activities and users’ social graphs can provide powerful insights for marketers, or as a core driver for shopping or search.
  • Plundering: Will companies with social platforms turn on their ecosystem by replacing them with their own features, apps, and services? So far, Google Maps, for example, remains hugely popular mash-up material, and Facebook and Zynga are still getting along.

Related Research: Social Media in the Enterprise

Question of the week

Is there a superior strategy for making money off social media?
Relevant Analyst
P1040724

David Card

VP Research Gigaom Research

Do you want to speak with David Card about this topic?

Learn More
You must be logged in to post a comment.

6 Comments Subscribers to comment

Latest Research

Latest Webinars

Want to conduct your own Webinar?
Learn More

Learn about our services or Contact us: Email / 800-906-8098