Facebook. Twitter. When you ask most people what ‘social media’ is, chances are it won’t be long until they mention one or both of those.

I’ve written before about how both of these are really just advertising businesses, but two things have happened recently that make me think their time might be up.

Facebook
Facebook’s stock opened at $38.00. It’s currently trading at $19.00. Why is that important?

I think its important because Facebook is viewed as the Titanic of social networks — unsinkable. It’s where everyone is and therefore where everyone (should) spend their time online.

If the biggest social network can’t convince investors that an advertising-based business model works, what hope for everyone else. Which brings me to my next point.

Twitter
Twitter as we know it wasn’t created by Twitter the company. Retweets, @mentions, even the Twitter ‘bird’ were all created by passionate third parties who love the service. I’ve written before about how online communities like Twitter only really survive because of their hardcore of users.

With the most recent announcement for their upcoming API changes Twitter seems hell-bent on ignoring the people who make the service great.

Why?
I think this has happened for a number of reasons. Social networks need critical mass to be even vaguely viable, and the easiest way to achieve this is to build something cool and give it away for free.

This works well for a while as numbers build, but free doesn’t pay salaries.

Nobody wins. The company doesn’t win because they have no way of making money, and you don’t win because you’ve only got a guest pass to a tool that has become really important to your every day life.

I don’t know if there’s a real alternative — perhaps not one that looks like Facebook or Twitter, but there are a couple of things that I think could emerge over the next few years.

App.net is a paid-for unification of the best bits of Twitter and Facebook. Bootstrap funded by its users it charges $50 a year for membership. They had a funding goal of $500,000 which they met, just. I signed up myself and it feels a lot like Twitter did when I first joined. The barrier for them will be reaching any form of critical mass ¹ when users have to pay.

Maybe the future isn’t in social networks as a destination for people to go and spend time, but in a set of social tools that complement businesses with a real revenue stream — like Amazon (who actually sell things) and Moneysupermarket.com who operate an affiliate model.

The real commercial value in Facebook or Twitter is their social graph ² Imagine if Facebook made money by licensing out what they know about you. By becoming a social media Dunnhumby ³ for anyone running a business that relies on knowing everything about their customers.

I could see a future where Facebook and Twitter make money by acting as a data provider instead of an advertising business.

Instagram’s Kevin Systrom, speaking at the Federated Media’s Signal in March this year:

“Our atomic unit of communication on Instagram is an image,” Systrom says. “Advertisers all around the world speak in images.” ¹

Facebook knows that its inability to make money from its mobile products is a potentially major risk to its upcoming IPO.

From their S-1 filing:

We do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven. ²

I think the real reason for the Instagram purchase, and the incredible price tag, is access to a potentially lucrative mobile advertising product.

$180,000,000 is a lot to pay for a company. Especially one which has only really been popular for 6 weeks.

OMGpop, a small network of largely flash based games released ‘Draw Something’, a game for iOS and Android where you draw a picture and your friend guesses it. It may sound extremely familiar, but its incredibly addictive. ¹

As usually accompanies runway hits on the social web, the app achieved multi-million numbers of active users and downloads, and (reportedly) billions of drawings shared. After 6 weeks of this success, OMGpop were bought by Zynga, the current doyennes of the ‘social gaming’ world, and publishers of FarmVille, Words with Friends. ²

When I first started working with the web, the dot-com bubble was in full deflate mode. ³ Acquisitions like OMGpop’s were unheard of. The story instead was of companies like Boo.com; painting themselves into a corner with insane valuations, ruinously expensive offices and no revenue. ⁴

In the last 10+ years the landscape which both of these companies operates in has changed dramatically, but what are some of the key reasons why one succeeded, and the other failed?

Boo.com was attempted to innovate in an established market. Zynga has created an established market entirely from scratch. Why did the innovation fail and the creation of
new market succeed?

1. Simplicity of route to market.Boo.com had to build an international logisitics network. Zynga publishes a game directly to its customers pockets through the app store.
2. We know what is shit. Boo.com needed to hire smart people with no experience of running a technology business (because almost no-one had). Zynga can hire from the pick of the people with the last 10 years experience.
3. Quality of product. Boo.com required two things most people didn’t have: a fast modem and a fast computer. Zynga can rely on the fact that it’s customers have a powerful and highly connected device to consume their products.
4. Price point. Boo.com sold luxury products with a premium price tag. Zynga sells games with an average price of around £1.69

One makes money by selling information about a community.

It’s customers are either you, or third parties like advertisers. It will often use a set of free products to encourage you to participate by creating, sharing or consuming content. ¹

The other sells things to support a community.

It uses commercial success to support the market or environment it operates in, and exists only to generate value for the cause it champions, or the change it wants to effect. ²

Over the past 10 years I’ve been inspired by building both. Most recently it’s been the first kind. Knowing how to build a community has never been a more valuable skill, or a more rewarding thing to do.

Google made a pretty big change to their search product this week – meaning that people and pages from Google+ now appear alongside your search results. Similar results from Twitter and Facebook do not.

Predictably this has caused a stink, predominantly from Twitter, who allege that the changes will ‘make it harder for people to find information’. ¹

Whilst this has undoubtedly changed the playing field for social marketing and search marketing quite significantly ², I think we need to remember something:

Google (and Twitter and Facebook) are completely free for end users.

As tools for communication and research they are almost priceless, yet it doesn’t cost any of us a penny to use them.

Just like Twitter ³ and Facebook, Google is an advertising business.

To sell more ads they need to know as much about you as possible, and have as much traffic as possible.

Putting Google+ next to normal searches means brands can’t ignore that presence. They will be forced to actively used it, and will eventually become Google’s customers.

If we want to be able to use such powerful tools for free but have other people paying for them, we shouldn’t be surprised when the companies that run them aggressively protect their business.

In December last year, Twitter unveiled a completely new version of its service, focussed on the way users discover and share information.

After a month or so of living with these changes its become really apparent that they are the first big step in turning Twitter from a social network into an advertising business, driven by the sponsorship of content and news.

Firstly, let’s take a step back to look at some of the big changes:

‘Discover’ tab

A tab which features trends ¹ and hashtags in a similar style to something like Flipboard or a good RSS reader. It’s supposedly a simple way of finding out about important topics across Twitter.

‘Me’ tab

This is a Twitter-version of the Facebook Newsfeed, and merges together your @mentions with notifications of when users follow you, add you to a list or retweet you. It’s a way of surfacing actions which previously were only notified via email. Its featured in the new version of the Twitter website and on the mobile platform.

A revamped version of the web version of Twitter, which looks and feels a lot more like Facebook by integrating pictures and other media into your timeline of tweets. There are now pages for Brands, and less focus on getting you to tweet and more on discovering what people are talking about through the ‘Discover’ tab.

Updated TweetDeck

A brand new version ² which is native on Mac and PC (no more Adobe Air). Loses a bunch of features but is re-branded. It doesn’t feature either the ‘Me’ or ‘Discover’ tabs.

Mobile

A new version of the Twitter mobile website, iPhone ³ and Android apps, all of which feature almost identical designs, based around the ‘Me’ and ‘Discover’ tabs.

Advertising needs eyeballs

Quite simply, Twitter needs large amounts of regular revenue. Like other social businesses this doesn’t come from subscriptions but from advertising.

They are unable to offer a similar, targeted advertising product to Facebook because they’re not creating a social graph ⁴. Their advertising offering is limited to promoted content, either in the form of Tweets or Trends.

To make these products as desirable as possible to customers (mostly corporates and brands) ⁵ they need to have as many people’s eyeballs as possible interacting with them.

The easiest way to do this is to restructure the experience around the discovery of content through aggregated Trends and popular stories. Hence the ‘Discover’ Tab.

Will it work?

I think this will be very useful for new users. One of the biggest problems with Twitter has been explaining what it’s for. Its origins as a communications network meant for new users it could sometimes be like owning a mobile phone but having no-one to text. Explaining Twitter as a place for getting timely access to breaking news, trends and gossip will make much more sense to the majority of people.

For me, the problem is with the relevance of the content in the ‘Discover’ tab. I don’t care about what the most popular Tweeted phrases are from everyone in London or the UK, I care about what’s been read, shared or tweeted by the people I’m following. How it works at present is akin to a quality conversation between friends in a crowded and noisy pub being drowned out by all the conversations taking place around you.

I am surprised that there’s never been an option for seeing ‘Trends amongst my friends’. Keeping track of the useful and popular conversations amongst those you follow can sometimes be a real challenge. I could imagine an advertising product where brands could target adverts according to ‘Personal trends’ based on the topics which are popular amongst those people you follow.