30 June 2010

Is social media really worth it?

Undoubtedly, social media is increasingly seen as a useful additional PR, advertising and sales channel. In 2010, for the first time in 25 years, Pepsi didn't run a Super Bowl ad in 2010, but focussed on a $20 million online Cause Marketing campaign instead. Dell has reported it generated $6.5 million of sales over Twitter, Sony Vaio's Twitter account has generated over $1 million in sales, and Blendtec's YouTube campaign led to a five-fold increase in sales.With social media activities starting to pay off for corporates (after all, they're free), they also become more attractive for investors. Paul David Hewson (better known as U2.0's Bono) and his private equity firm Elevation Partners have just acquired 5 million shares in Facebook for $120m, following the purchase of 2.5m shares for $90m in November 2009. Until now, private investors have pumped more than $830 million into Facebook which is by far outperforming Zynga (the Farmville game maker who has recently seen another funding of $147 million, bringing total funding to $360 million), Twitter ($160 million) and LinkedIn ($103 million).Looking at current market evaluations, these investments make perfect sense: Facebook is valued at $14 billion, Zynga $2.6 billion, Twitter $1.5 billion and LinkedIn $1.3 billion. Estimated advertising revenues for Facebook in 2010 are within the region of $1.1 billion to $2 billion. Twitter (so far) makes money by partnering with Google and Microsoft, and is currently testing advertising options. The value of Twitter is now estimated at more than $1.5bn (it was already valued at more than $1bn before it had generated any revenues at all).So the answer to the question seems to be a straightforward yes. Social media does make money and people do like Facebook & Co. Investors do invest and do make money too, and the market valuations are reasonable, given the platforms do the right things and do things right. The poster announcing the movie about Facebook sums up the current climate of self-confidence: you don't get to 500 million friends without making some enemies. If "some enemies" become "many" because of an overload of commercialisation or privacy concerns however, there might still be trouble ahead.

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