IE Focus | By David Gracia, Professor at IE Business School
The social networking phenomenon is unstoppable, but there is still no business model capable of successfully exploiting the services these companies provide.Social networks are attracting more and more consumers´ attention. As a result, they are becoming an unbeatable opportunity for advertisers to showcase their products and services to potential consumers. However, advertisers´ and users´ interests are not always the same and social networks need to find a balance so that they can attract new users and, at the same time, capitalize on their services in an Internet culture ruled by freebies. It is a three-edged challenge: advertisers, users and the social networks themselves.
Social networks are a particularly attractive platform for advertisers. Facebook, which has just completed its sixth year, was visited by 460 million people in February, 13.3 million of them from Spain (according to figures released by Nielsen). If Facebook were a country, it would have the third-highest national population on the planet, with more than 400 million inhabitants.
The comparison between Google and Facebook is particularly interesting. On the one hand, the percentage of Internet users that use the search engine in Spain is 91%, whereas only 53% use the social network. On the other, the key factor lies in the time spent by users on the site: whereas with Google people enter, search and leave, whereas Facebook users are getting more and more involved in a growing number of activities. On average, users spend 1.45 hours a month on Google, which is very little in comparison with the 6.5 hours they spend on Facebook.Advertisers find social networks attractive not only because of the time users spend on them, but also because of the options they have for creating hyper-segments of users who reveal a large amount of information about themselves. What´s more, messages spread on social platforms like viruses and they are sent from one group of friends to another, which gives them more credibility than the commercial messages sent out by the companies themselves. This means that marketing managers have to be highly imaginative and the most popular brands on Facebook are not necessarily the ones that invest the highest amounts of money. For example, according to José Antonio Gallego, Chairman of AERCO, Lady Gaga is worth more than Coca-Cola, Nutella is worth more than Levis and Victoria´s Secret is worth more than Nike.
Digital users are maturing and they value other users´ opinions when deciding what to buy. The main reason users turn to social networks is to connect with other friends and share content such as photos, videos and comments, etc. In other words, users arrive at the platforms in “social mode” and not in “shopping mode” or “search mode”. This means that they develop a kind of “advertising blindness” and traditional marketing techniques, such as banners, are not very effective in social media.
This is very obvious to us today, but it was a different story a few years ago when everyone thought that social networks would be the new boom in online advertising. In 2005, News Corp purchased MySpace, the largest social network in the world at the time, for $580 million. Google then signed another million-dollar agreement with MySpace to manage the advertising on the social network. Time and advertising conversion ratios showed that too much money had exchanged hands in both cases.
Social networks are facing two challenges: keeping their users´ attention and making the services they offer profitable. Despite the growing amount of time users spend on social networks and the tremendous potential these platforms have for creating user-based segments, no one has yet come up with a business model capable of successfully exploiting the services these companies provide.
It would seem obvious that the social network phenomenon is unstoppable and, indeed, there are those who talk of the end of the search engine era. In March of this year, Facebook had more hits than Google for the first time ever. Social networks need to find the often delicate balance between continuing to attract new users and leveraging their business model. They also need to make use of the information users share in these new social media to offer personalised content, but always within the bounds of respect for their privacy.