Facebook, Twitter, Instagram, Pinterest, Snapchat, and the list goes on and on.
They’re social. They’re media. But what the LOL are they really selling? At valuations that exceed the GDP of most developing countries, what is so valuable about them?
Let’s step back to the stone ages– the 1990s. Remember phone bills? They were wrapped up in an envelop, delivered by someone called the ‘postman’. Millenials, if you watch Seinfeld, you can see footage of one of these highly endangered creatures.
Phone companies had a business because people needed to communicate. Now imagine, if in the middle of your call, an ad message interrupted your conversation– literally just put both parties on hold so they could listen to an ad. Yeah, that would have been the death of them.
Advertisers would have jumped at the idea of course, given that they’d brand my grandma’s oxygen mask or anything else that had at least a centimeter of space to brand. Phone companies didn’t do that because, back then, a business model was built on the business you’re in, not the air you can sell.
Okay, so let’s come back to the future, 2015. Phone conversations are replaced by social media chats, phone cords by WiFi and dialing pads by keyboards. Same business– connecting people… save that the social media companies are under the impression they can sell the air.
Chalk it up to the fact that most of their founders were or are in their 20s, and have been called the Tech ‘Gurus’– their experience in business, let alone life, is about as savvy as ours was at 20, so ‘Guru’ might be an overstretch (and of course a brilliant term only an advertising or PR exec could coin).
Throw in the fact that the old-school financial or investment experts are in a mid-life fret about not really understanding the technology, the age of digital and all the new apps in between– instead of offering their expertise to guide these creative tech geniuses through building a solid business, they’re slipping into their Silicon Valley Crocs and voyeuristically enjoying the ‘Billionaires Under 30″ ride.
Then again, these seasoned venture capitalists are no different than their Neanderthal Wall Street ancestors, who parlayed everyone into the 2008 shits and giggles meltdown.
Let’s step back a bit, shall we? Businesses sell something– something that is tangible, such as a product or service. Ergo, they have a ‘core business’.
Second, the business model is built on that tangible product or service.
Lastly, advertising (marketing) is used to sell THAT product or service.
So, when we use the simplified– oh-so-ever oversimplified, but key checklist– let us look at the social media business:
- Product/Service: Communication. Call it sharing, posting, status update, poking– in business terms, its communications, people.
- Business Model: Advertising. Call it ‘Pages You Might Like’, ‘Brand Influencers’, or ‘Brand Advocates’. If it looks like an ad, sounds like an ad and talks like an ad, it’s advertising.
- Marketing Strategy: PR 20-something ‘Gurus’ in jeans and sneakers, sporting a ‘Geek is Chic’, ‘Techy is Sexy’, image. Big Bang Theory meets (or rather bumps into) GQ.
Will everyone who graduated from Wharton please stand up? What’s wrong with the above picture?
Anyone? Anyone? Bueller?….Bueller?
Well, then, let’s begin.
Social media is no different than telecom, broadcasting or publishing– they are all media venues that make advertising more possible and place-able. Having said that, the latter 3 create have core businesses, with business models built on their core products/services, and they use marketing to sell them.
Telecom sells phone lines.
Broadcasters sell programing.
Publishing sells information.
Advertising supports these businesses, but these businesses have something to sell– things that they produce or service– things that answer people’s needs and wants.
Social media sells people. Really, that’s about it. It sells people to advertisers.
They know that’s all they have to sell– because it is the easiest way to sell. They know it so well, that they’ve compromised our personal info and content in hopes that they can close the gap between their ACTUAL profitability and their pie-in-the-sky valuations that they need to keep up in order to get more investors.
The joke is, the big punchline we haven’t seen coming yet– the last time history had businesses selling people was the slave trade; it’s irony at its best, my friends… social media as the altruistic hero carrying us all into the age ‘democratization’.
What we haven’t learned for some reason, though history is sick and tired of teaching us, is that people will only buy air for so long before they realize the air can’t be bought. It happened with the dot.coms, it happened with real estate, its happening with Quantitative Easing.
Valuations in the double-digit billions should make us think it won’t happen with social media businesses– simply put, they don’t have a business.
The question is, who’s going to wake up before all the 20-something Gurus and the financial suits-gone-surfers grow up?
If history is always right, unfortunately, we all will… 10 seconds after the social media bubble bursts, and we find ourselves covered in Guru goo.