The use of social media has been on the increase in the last few years, resulting from technological advancement, more so in the field of information technology. Social networking, for most of us is a daily activity and we are so indulge in it these days. Almost everybody is familiar with the social sites like Facebook and twitter. These sites have millions of users and are quite popular. With the common social media sites being Facebook, Twitter, YouTube, and LinkedIn, businesses are also accepting the use of these platforms in their operations, thus increasing their profitability (Duggan & Smith, 2013). These sites do have employees and they o earn money. The question is, how do social network sites make money? Well, the answer to this question lies in this paper. The purpose of this paper is to analyze how the social networking platforms earn money, the markets of operation, their market share, competitive strategies, their methods and impacts on businesses. Arguments on the various issues discussed are supported using scholarly sources.
Venture Capital: Most of social networks begin with funding from venture capitalists. Investors are happily willing to take a risk on a company if they think company can earn profit in the future. So they invest happily and wait to earn the profit. Facebook is a huge example of this. We all have an idea how Facebook was introduced and how it works, but how does it make money? The answer to this is with venture capital (VC).The same goes with Twitter. Twitter and Facebook have each raised several million dollars in venture capital. Their aim is to either earn revenue from the business or sell it to a large corporation for an even larger profit.
E-commerce and Advertising: Advertising is basically the most common method of earning money through social networks. That’s all possible because of billions of users worldwide. Billions of users, surfing and wandering around their websites, viewing these ads. So it would not be wrong to say that advertising is the most common way of generating revenue for the companies. But it still is an emerging market. Twitter had a developer conference called chirp. In which they discussed to increase the advertising power by monetizing the websites. Their thinking is that since the users use the website to get product recommendations and companies use it for the promotion of their product so why not to make customers buy their products directly from the twitter through e-commerce.
Premium Options: Some social networks offer premium options to its users in an attempt to earn some money. LinkedIn offers premium package for the individuals seeking for jobs. All the networking options are free but if you want to get some privileges, you have to sign up for the premium options.
Creative Promotions and Products: Monetizing a social network is not an easy task to perform. So sometimes in order to earn revenue, websites are forced to come up with some creative ways. The most suitable example of which is, Facebook gifts. These allow their users to send virtual gifts to their friends that appear on their wall. The cost of the gift is $1.00 and we can add personalized message to it too. That’s quite genius.
The Target Market for Social Networking Sites: Each social media platform has a unique identity based on what type of users it has and how they're using the site. To enhance your social media advertising efforts, it’s significant to understand who your clients are and which social networks they spend their time on. As network usage develops, each lends itself differently to brands, depending on who their target audience is, and what they're trying to achieve.
The Information Technology Market: In the past few years, the internet-based social media has spread quite rapidly and the number of users of Facebook, twitter and YouTube have grown and now it’s possible to communicate with thousands of people all around the world about products and the companies that provide them. For the determinations of enhancing your social media campaigns, sensibly outlay your ad dollars and aiming visitor blogging prospects, you need to know where your audience hangs out online. Due to which consumer-to-consumer communication has widely increased. The marketers grasp the opportunity immediately. After high street retailing, the Internet has become the second most important distribution channel and a major source of customer information and empowerment performance in the Stock Market.
Effects on Other Markets: Twitter, Facebook and other social media are increasingly influencing trading and investing markets. Twitter is affecting the stock market. It would not be wrong to say that one tweet have the power to affect the stock price. Social media has a great power to influence the markets. If company do something unpopular, social media backlash occurs rapidly due to which business decisions might alter. As social media offers great accountability, it also have the power to cause certain tension in a market.
Facebook: Facebook has a market share of 40.67% according to the survey of March 2017. Two pairs of social networking sites are still battling it out between each other. The fight to be the third social networking site is between Twitter and Reddit. The race for the fifth place is between image based social networks Pinterest and Facebook-owned Instagram.
Twitter: Twitter has regained the number three spot in US visitor market share. Twitter continues at its all-time high percentage on this top 10 chart with 5.55% in March 2017. Twitter’s market share has been in a virtual standstill since January 2016. But lately, there has been a bit of a growth spurt that started in September 2016. This has not yet reflected in Twitter’s stock price which is trending down. Also since October 2016, Reddit has been in the fourth position, and Twitter has regained the number three spot in US visitor market share.
YouTube has a market share of 25.40% according to the survey of March 2017.
Product differentiation: To generate revenue from the social sites, product differentiation is used. That is basically to distinguish the product or service from their competitors, to make it more attractive to the target market. ii. Market segregation: Market segregation is basically the process of dividing the business market into existing and potential customers, into subgroups of consumers based on their needs, characteristics and lifestyles. The main aim of segregation is to identify high yield segments that are most likely to produce great benefit.
Advertisements: Advertising is the number one way to earn money through social media. As social sites have millions of users, wandering over their websites, so just imagine how many views these ads can get and how much money can be made through these ads. ii. Informal Interactions with Clients: Informal interaction with clients through social media can reduce the tense environment in the workplace. Moreover it can be a method to gain trust of your clients. The better you know your clients, the more they’ll trust you and the better you’ll be able to find out their interests and their response to the services you are providing them. Ultimately, your clients will increase that will have a positive effect on your business.
Reaching a Large Number of Consumers: Through social network, in this era, you can now increase your consumers quite easily through advertising your brand and giving them attractive services. You can also tend to learn the interests of your consumers through their social activities and then providing them the products according to their needs.
It is clear that the use of social media is not going to end anytime soon. More sites are being developed, which brings in the question of how these sites make money, consequently attracting more people to develop more platforms. I hope this paper has given you a sense of what social media is and how it can be used to make money. The paper thoroughly explains on each of the methods used to earn money, the current market share of the social media sites, and the markets within which they operate. Additionally, the competitive strategies and impacts of social media to businesses are also explained.