It’s odd how the presences we create in our lives via social media sites take on a bigger meaning sometimes. Here’s a tragic tale of two young men whose lives crossed paths… and whose families’ lives will never be the same.
Via our local blog…
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WatchMojo NewsletterBack in the day, companies spent money advertising in order to gain users and generate sales. Today, most startups don’t really advertise much, because they tend to deploy social media attributes and rely on viral marketing (word of mouth, viral growth, etc.)
These sites don’t even tend to raise much capital, so not only do they not advertise much, but they do not spend much on IT expenditures, rent, office space, etc. Let’s face it: the multiplier effect just isn’t what it used to be back in the day. Before, companies raised boatloads of cash, but they reinvested in the economy. Today, most companies don’t raise much; those who do are stingy with the proceeds.
While many of these sites tend to fizzle, a few do go on to experience strong growth in user acquisition and adoption.
Given the huge opportunity in online advertising, unlike their Web 1.0 brethren who sought to monetize their eyeballs via e-commerce, today’s crop of websites turn their backs and thumb their noses at e-commerce and instead adopt an online advertising strategy.
The problem is that as social media sites - either relying on user generated content of one form or another - advertisers shy away from spending money on these sites… despite the fact that they generate a lot of inventory, flooding the overall market with cheap, unsold inventory.
Meanwhile, these sites tend to turn to Google Ad Sense as a desperate stop gap measure to generate revenue. Many don’t… adding insult to injury, these sites tend to pummel the click through rates (CTR) that Google leverages to generate more revenue… so as its monetization rates fall, Wall Street grows worried and punishes Google’s stock accordingly.
Google, in turn, focuses more on revenues and profitable deals, and it shies away from giving these sites attractive minimums to lock up their inventory.
If you repeat this cycle (Myspace, Digg, etc) a few times, you see that net-net: the effect is actually quite negative:
- VC money flowed to such social media sites
- Most did not generate material revenues to deserve follow up investment
- Few attracted exits
- Rarely did any of them spend much in terms of online marketing
Maybe this is why we are seeing some hiccups in growth rates? After all, while online advertising growth rates remain buoyant relative to the morbid print, TV and radio rates… we are seeing a reduction in the velocity, no? Forget social networking revenues, those are headed straight down the drain.
I don’t mean to be alarmist or anything, but I see this exhibitionist UGC/social media nonsense as the Achilles Heel of the Web… you know, sort of like the answer to “what led to the decline of western civilization online media”?
Google’s main asset is not its technology… but its distribution and monetization - two things we’ve long pointed out.
Fortune has a good write up on this:
No, what Google has done is not to have created the world’s best tech company but to have created the world’s most powerful and profitable marketplace. The development of that marketplace flowed from having superior search technology in the company’s earlier days. But today Google is not unequivocally the best place to search for information.
Microsoft owns a site called Live.com that offers search results that in many cases are just as good as Google’s, and sometimes are better. But nobody knows Live.com exists, and there’s little likelihood that will change.
Microsoft knows it must create not comparable search but a comparable marketplace. Both in my most recent magazine opus on Microsoft and in an earlier story I wrote about online chief Kevin Johnson, I explained the Microsoft view - the more searches that take place on a site, the more advertisers who are likely to come there. And the more advertisers who are there, the more bidders there are in competition for slots adjacent to the searches. Thus, the larger a search company’s scale, the more money it can charge per search. Not only is Google larger, but it is more profitable per search.
Read more. It’s a shame YHOO was too stupid to take the $45B offer and become relevant in search. Instead, it will still lose independence to MSFT but not cash out the way it could have. Oh well…
