Profit? Loss? What does Social Media actually Provide?

3 Henry Kingston

Twitter

People around the globe are currently reeling at the news that Twitter – one of the biggest social media platforms in the world – has reported a $645 million pound loss in 2013. Even worse is the fact that in 2012 their revenues amounted to $665 million, up 110% from the previous year. So what does this mean? Is Twitter no longer a powerful social media platform?

Of course it is. It is used by billions of people on a daily basis, including some of the most influential people in the world. Even Barack Obama has his own Twitter feed, along with numerous MPs from the UK. The reason it has made a loss is the same reason that Facebook did a few years back – they floated the company on the New York Stock Exchange.

In November last year Twitter followed in its predecessor’s footsteps by deciding to become a publically traded company, offering stocks and shares to investors. However, the same issue arose with Twitter as it did with Facebook, the main reason behind this being that social media platforms were not designed to make money.

Social media platforms are influential; they can improve a business’s brand name, popularity, authority and even conversions. The great thing about social media platforms is that they can make an unknown person or company a common name in a matter of weeks, providing you have the right social media strategy. Viral tweets can be seen by millions of viewers all at the same time, each of which is likely to spread the information via Twitter, alternative social media platforms, or even word of mouth.

This is why the Advertising Standards Authority (ASA) recently implemented legislation stating that users (particularly celebrities) who endorse products on Twitter in return for money have to state that their tweets are promoted or sponsored. Before this there were a number of news stories commenting on how certain celebrities were promoting products that they had never even used.
Even though a tweet, Facebook post, or any other type of social media post for that matter can generate sales, the platforms themselves cannot. Countless people have tried, which is why we see sponsored posts and adverts becoming increasingly visible on Facebook and Twitter (Google+ adverts are increasingly being integrated with the SERPs). These adverts, and the ability of posts to improve conversions, are why so many people flocked to buy stocks of popular social media sites in the first place.

However, posting a singular advert on Facebook or Twitter does not guarantee conversions, in fact a singular post with no social media strategy or campaign behind it is less than useless – it’s annoying and spammy. Nate Elliott, an analyst at research firm Forrester, summarised the issue perfectly: “If you don’t have an engaged user base, you don’t have a business. They have got to do better on users, that is the entire story.”

In the last quarter of 2013 nearly 90% of Twitter’s revenues came from advertising, while at the same time the platform only saw a monthly user increase of 3.8%. What this tells us is that Twitter needs to change; it needs to ensure that the users are still its main priority while at the same time coming up with fresh advertising ideas. Since introducing new forms of advertising Facebook have been able to regain their authority with sales increasing by 63%, and their userbase up by 16%.

Businesses are still able to utilise social media platforms to make a profit, even using paid advertising, however this advertising needs to be sophisticated enough to guarantee return on investment. Reinventing yourself as an advertising platform from a social media platform is never easy, however in the next year we expect Twitter to emerge from the ashes and fulfil both users and investors’ needs.