Tuesday, April 22, 2014

Has Social Media Lost Its Meaning Over Economics

Has Social Media Lost Its Meaning Over Economics

Written by: Morgan Johnson


Social media has exploded over the past decade, from Myspace to Facebook to Twitter. However, as Facebook and Twitter have become extremely popular in the past five years, many believe social media has lost it’s true meaning. As social media companies continue to be in demand, the cost to maintain their services rises, causing them to find a means to afford running their company. In many of these cases advertising and even promotions have to be made in order to bring in revenue, however, many believe these ads and promotions take away from the meaning of social media by distracting viewers from their friends posts. The truth is, though these advertisements and promotions may be distracting, they are necessary in order for Facebook and Twitter to remain free to the public. It really comes down to would one rather want free social media or pay for adfree social media, however, the smart choice is obvious: free social media.

Facebook itself has 1.23 billion users, which, comes with costs over a billion dollars a year to run, almost $83 million a month, thus ads are necessary to keep the cost of Facebook free. According to Splatf.com, 85% of facebook’s revenue comes from advertising. Also, Facebook has partnered with other companies to bring in revenue, such as Zynga, the company that makes Farmville and other Facebook popular games -- bringing in almost 12% of facebook’s revenue. Other popular companies, such as Netflix and the Washington Post, have bought around $8 million of Facebook revenue. For those who may complain about the number of ads on Facebook increasing, they are wrong. Over the past six years Facebook has gone from 98% of their revenue coming from ads, meaning there was a lot more in the past, compared to the now big drop to only 85% of revenue coming from ads. Because social media is in such high demand, the cost to run these sites raises, and with that, more people are willing to put up with ads to be supplied with social media. Thus, it is obvious that the company is making a conscious effort to keep ads from overpowering the social media aspect of their website, while still keeping it free. 


Twitter is another great example of a social media company who must impose ads on their website in order to keep the social networking free for users. Though Twitter may only have 100 million users compared to facebook’s 1.23 billion, over 300 million “tweets” are sent a day, generating costs to support keeping the site running. Instead of visible ads like Facebook, Twitter has “Promoted Tweets” which is paid “tweet” of a company’s product that is promoted to users. Twitter has even made things such as a “Promoted Account” which a company pays Twitter to be displayed under the “Who To Follow” tab on normal user’s Twitter accounts. Once a user follows these promoted accounts, the account is charged on a “Cost-per-Follow” basis. This not only benefits Twitter, but other companies too; Twitter gets the revenue and the “Promoted-Account” or company gets the advertising. Which brings up the idea that social media may not really be social media anymore, but business. However, like any business, consumer happiness is important to keep their product selling, therefore, like Facebook, Twitter makes revenue by advertising, but keeps it as limited as possible -- not to be distracting to users -- and allows users to social network free of cost.

After seeing how many users these social networking companies must support without selling their product, it is evident that keeping ads on their websites is necessary to keep users from paying for their social media. Users must understand that these companies need to pay their employees, pay to hold their website url, and any other costs that may come up in a business. These things must be paid for somehow and the only logical solution is to keep ads and promotions on these sites. If these sites were to go ad free, they would be forced to sell their product for high prices, creating problems with users who may not be able to afford or want to pay for social networking. If users want to continue using their Facebooks and Twitters, they need to deal with the fact that ads and promotions are supporting their free use of social media. Though they may be visible or distracting, it’s a small, negative externality of free social media compared to the large, negative externality of paying for social media.


Works Cited







11 comments:

  1. This was a very interesting topic to choose because I think we all can relate to social media and have contributed to its increasing popularity. Granted pop up adds are annoying when scrolling through our news feeds but each social media site does need to find some way to bring in revenue. Having Facebook and Twitter as free apps on our phones does not bring their company any money and therefore they need to turn to advertising to bring in the majority of their profit. It was interesting to see that the amount of advertising has diminished as seen in your graph because as the sites continue to get more and more popular, more are willing to pay and support them.

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  2. From the looks of it, although highly annoying and distracting, the advertisement for these social media sites are needed, simply because they are free, this causes a lot of funds needed to keep it free. It may seems as if these social medias make tons of revenue, and although they do, it isn't from what you nor i would have suspected, they use such things as advertisements, promotions, and other apps such as game, which was mentioned in the blog above. With the high demand for the sites, the cost for maintaining these demands increase making the amount of advertisements increase because why not have your product shown on a central place where you know it will be noticed one way or another. In my opinion this is simply genius for those who are trying to promote their product. Though the owners of these social medias say they won't allow the advertisements to suffocate the consumer, or the people who use the sites, i believe in the near future, similar to how Morgan was saying, that these sites will become business dominant.

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  3. This is a great example of unlimited wants, but limited resources. The social media websites must offset the unlimited wants of its users being that they don't want adds. However, adds which act as revenue is a vital part of social media's success in the short run and the long run. Like any company the social media websites need to revenue they get from promotions to keep the business going.

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  4. I agree that the cost paying for social media outweighs their annoying advertisements; part of the reason these companies have been so successful is because of their free appeal. Personally, I don't have a Twitter account, but it interesting to learn how their ads differ from Facebook with the "promoted tweets". Some sites have a good system: if a user doesn't want ads, they can pay a fee; otherwise, consumers can continue free of charge, albeit with ads.

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  5. I'm going to have to disagree with you when you said that because Facebook is bringing in a higher percentage from other types other than advertising does NOT mean that there is less advertising. If you look at your graph the percentage for advertising was nearly 99% for when their income was only 3/4-2 billion dollars. If you look at what the percentage is now you can see that they are making more money off of advertisements; just because the percentage is lower doesn't mean there are less of them. But I do agree that people love to complain about anything and everything even if its something as simple as an ad on the side of the screen. And I do agree with Lian with how some sites use a subscription method in order to browse ad free while the other free of charge users continue with ads. This is the way it should stay in my opinion.

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  6. You claim that because Facebook has gone from receiving 98% of their revenue to 85% of their revenue from ads, that the number of ads on Facebook has not gone up. However, Facebook's profit has gone up a LOT in recent years, not necessarily because of ads, but not exactly hindered by them either. This drop in percentage of income from ads simply means that more income could be flowing in from more social games than it did in the past, or that they partnered up with another company to help boost revenue; I know Facebook has definitely NOT been decreasing the number of ads they put on their site.

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  7. Well from a business standpoint, this is one of the best ways to generate revenue for a social media site, especially the big name ones like Facebook and Twitter. While I don’t have any social media accounts, this is a smart move in the right direction for these companies. I do not see the big problem in ads, even though they can be frustrating at times, popping up erratically when you are browsing a site or ones that take forever to skip or will not let you skip. All I am saying is that these media sites need ads to get money and pay for all that maintenance and security. Keeping a large website like Facebook with over a billion users is not easy or cheap by any means, it is actually quite expensive. Even though ads can turn people away, you do have to remember that these sites keep it free, and free is nice. It feels funny talking about these topics when I clearly have no experience in them but it’s nice to learn about relative economics. Good job on the post. It makes people think.

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  8. I don't think that anybody would pay to use a social media site, because not everyone has the money for that, and it is something free that people can use all around the world in or to communicate with one another. People on social media sites are probably already paying for some type of electronic whether it's a phone or a laptop in order to access the social media site, so what's the point of paying more. The ads on Facebook, twitter, etc. are necessary in order to keep people coming back to their sites, because they are free and open to anyone to use. I think you did a good job discussing this topic.

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  9. It's the big companies that keep these places alive. Those who advertise or promote their account. They pay to keep it free, with the addition of getting themselves lifted up even higher. I rarely notice ads on social media sight, and it's not because of ad block, but It's quite noticeable how much they've decreased in the past few years now that the companies have other methods to receive revenue to help pay for their products, so the sights are becoming "more social" again.

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  10. Social media may have grown a bit too much - there's so many now - but the companies involved are able help each other out at the same time. Facebook continues running because businesses are paying them for advertisement, and those businesses get more consumers because Facebook is promoting their ads. My boyfriend is making a game app for Apple devices, and he knows the smartest way to do it is by making the game free and instead make money through advertisements. People would rather put up with a 30 second advertisement video than pay for a game like Flappy Bird. It is a relatively safe path too because companies always need/want advertising so the demand will always be there, allowing things like Facebook to remain free.

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  11. You can kind of make this into a metaphor on what we learn in last class. Just think advisement is the tax and letting facebook be free is like government spending. Facebook is basically taxing less and making more money. Because it is free more people have the incentive to go on (Like when the government increases it's spending to try to raise employment). They "taxed" less so the people won't get as annoy going on it. Yet still get even more money because more people spending more time on facebook. Facebook is just demonstrating how increasing spending and lower taxes is beneficial (There are other ways that work but this is the one they used)

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