If You’re Thinking of Launching a Social Media Startup, Please Don’t

My wife works in online marketing for women's retail. Every time they spend a dollar on Facebook or Twitter, they make two, or sometimes four, or more. An ad click or promoted post results in a measurable real sale.

Social media advertising is not that different from the kind of Google Adsense ads you see on blogs, at the end of the day. Sure, they convert less than Adwords and are less profitable since there's less intent, but these things are still a quantum leap beyond what was possible before the Internet.

New channels spring up and they turn out to be valuable and help businesses make a lot of money and build real brands. My wife worked at Modcloth and now at Bebe. Modcloth is probably going to go public in the next few years, and all with an online-only, email and social media-based marketing machine. They're a profitable real business built on a new channel.

Bebe was started in 1976 and also piggybacked on a new form of advertising medium that was unexploited. In 1976, it was bus terminals and bus shelter ads - they were cheaper than any other method (magazine, etc) and got their brand everywhere. Today it's a public company.

It is in 2013 as it is in 1976. I'm sure some people made bad ads and lost money on bus shelters back then too.

http://www.economist.com/news/finance-and-economics/21569397...

Here's the money quote:

Investors selecting a sector on the basis of its prior five-year performance would have earned much higher returns over the following five years by selecting the worst-performing sector than the best.

So if you're looking for an idea of what business to launch look at what did the worst over the last five years... Rather than what did the best (obviously this is just one thing to consider out of many, but I think there's a lot to be said for it.)

Also, he claims that Facebook and others' business models have failed because they don't convert well, or because their users are "forced" to use them. So what if only some Pages have used the product? Those are the companies that get value from it, and they'll continue to pay for it. And Facebook has other sources of revenue. I hardly think it's an example of a failed business model.

I think the more interesting question is what will emerge after this transition phase where old media is dying. At this point all the webby stuff is still bottom feeding but eventually will replace the old thing with something new and sustainable.

It's very hard to make money off of people posting pictures of cats on a general forum (e.g. Reddit), but maybe not as hard to make money off of people looking specifically for pictures of cats (e.g. CHEEZburger). The latter captures user intent much more powerfully than the former, and the value to advertisers is thus much higher.

My startup (https://www.zupstream.com) is focused around making it easier to discover and organize real-world activities with your friends. We believe that targeted advertising can work in this case, since users are specifically looking for things to do, and then making plans with friends to actually do them. If someone creates an activity asking, "Anyone up for dinner tonight?", presenting an ad for local restaurants right then will be much more effective than displaying an unrelated banner ad.

If You’re Thinking of Launching a _____________, Please Don’t

Now instead of "Social Media Startup" write an actual business idea.

Nobody starts a "Social Media Startup". People start companies that might involve social media to more or lesser extent or might have network effect, organic growht and so on. But starting a social media startup is not what people do.

I can back this up with some information. I currently work for a large corporation who has invested a ton of money into social media (facebook, twitter, instagram). Even after several years, there is a huge war being fought between "new media" types in our company and the "old media" types. Our CTO routinely joins our meetings and basically says, "Great, we had 5,000 likes on our Facbeook page, how many more widgets does that sell?"

For them, there is almost no way to track how much of an impact a tweet or a facebook like has on their bottom line. Conversely, when they run a print ad for a certain model, and sales increase x%, they attribute it to the print ad.

Any blog/ecommerce site with social sharing buttons on it is a form of social media startup, for example.

Even on the almighty social network I can not just feel (that I could since a long time) but also see people complaining.

No latter than today I opened FB just to see one post by a friend and lots of comments about the lack of privacy on FB and why FB "knew too much" about individuals.

It's also quite amazing: that friend (and several of those who answered) hardly post anything anymore there. And the consensus was pretty much: "I'm not posting anything nor commenting on anything on FB, except when it's to bitch about FB's policies and use of our data".

Non-techies friends btw.

I'd say the problem for mainstream users is that some apps are too targeted: it may be both effective (and the most cost effective way to advertize and reach your audience), it's also creepy to many users. There are some users who realize that any site they open, anything they 'like', any video they watch is used to target them more and more. As a result they're not liking stuff anymore, not opening their mouth, not opening friends' links, etc.

"I must confess that a man is guilty of unpardonable arrogance who concludes, because an argument has escaped his own investigation, that therefore it does not really exist."--David Hume