Page 340 - Using MIS

308 Chapter 8 Social Media Information Systems

This possibility would enable organizations to better understand the value of their social net-
works as well as guide their behavior with regard to particular individuals.
Stay tuned; many possibilities exist, and some ideas—maybe yours—will be very successful.

Q4 How Do (Some) Companies Earn Revenue

from Social Media?

Having a large social network with strong relationships may not be enough. Facebook, for ex-
ample, has more than 1.3 billion active users that generate 4.5 billion likes each day. YouTube
14
has more than 1 billion active users that watch more than 6 billion hours of video each month.
Both companies have extremely large numbers of active users. The only problem is that they
give it away for free. Billions of anything multiplied by zero is zero. Do all those users really mat-
ter if Facebook and YouTube can’t make a single penny off of them?
As a business student, you know that nothing is free. Processing time, data communication,
and data storage may be cheap, but they still cost something. Who pays for the hardware? Social
media companies like Facebook, Twitter, and LinkedIn also need to pay people to develop,
implement, and manage the SMIS. And where does Web content come from? Fortune pays au-
thors for the content that it offers for free. Who is paying those authors? And from what revenue?

You Are the Product

Social media has evolved in such a way that users expect to use SM applications without paying
for them. SM companies want to build up a large network of users quickly, but they have to offer
a free product in order to attract users. The dilemma then becomes how do they monetize, or
make money from, their application, service, or content.
The answer is by making users the product. That may sound strange at first. You don’t want
to think of yourself as a product. But try to look at it from the company’s point of view. When a
company runs an advertisement, it’s essentially being paid to put the ad in front of its users. In a
way, it’s renting your eyeballs to an advertiser for a short period of time. Google is paid to target
users with ads by using their search terms, sites they visit, and “scans” of their emails to place
targeted ads in front of them. In essence, then, users are the product being sold to advertisers.
As the old saying says, “If you’re not paying, you’re the product.”

Revenue Models for Social Media

The two most common ways SM companies generate revenue are advertising and charging for
premium services. On Facebook, for example, creating a company page is free, but Facebook
charges a fee to advertise to communities that “like” that page.

Advertising

Most SM companies earn revenue through advertising. Facebook made 91 percent of its 2014
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first quarter earnings ($2.5B) from advertising. About 90 percent of Twitter’s $250M first quar-
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ter earnings came from advertising as well. Advertising on SM can come in the form of paid
search, display or banner ads, mobile ads, classifieds, or digital video ads.

14 “YouTube Press Statistics,” YouTube.com, accessed June 18, 2014, www.youtube.com/yt/press/statistics.html.
15 Josh Constine, “Facebook Beats in Q1 with $2.5B in Revenue, 59% of Ad Revenue from Mobile, 1.28B
Users,” TechCrunch.com, April 23, 2014, accessed June 18, 2014, http://techcrunch.com/2014/04/23/
facebook-q1-2014-earnings/.
16 Jay Yarow, “Twitter’s Stock Plunges After Earnings Reveal Weaker-Than-Expected User Growth,” Business
Insider, April 29, 2014, accessed June 18, 2014, www.businessinsider.com/twitter-q1-earnings-2014-4.