If you are reading this, you would definitely have an account on facebook, orkut, myspace or twitter. The advent of social media in the last few years has changed the outlook of many people towards the internet. Online advertisements received a much needed boost as many people started using social media. Social media brought with it a new business model, which forms the core of many companies these days.

You get a free account on any of the social networking sites, making you wonder how these sites sustain themselves. Let us take the case of Facebook, the social networking site founded by Mark Zuckerberg in 2004. Today, facebook has more than 350 million users with 50% of the users logging in every day. This creates a huge market for advertisers. Facebook initially was concentrating on increasing its value, rather than looking for a revenue model.

Facebook uses a concept called targeted advertising. It allows advertisers to choose a much wider array of characteristics for the users who see their ads. This not only includes age, gender and location, but also favourite activities, music, sports, etc. Facebook points the ads to various groups of people without exposing their personal information to the advertisers. If you’re going to be forced to look at advertisements why not be forced to look at advertisements that you may be interested in? Either way, the Facebook corperation makes money off of the advertisements that they have plastered throughout their entire social website. This advertising avenue is not limited to big companies alone. Anyone who wants to highlight their profile, their page, their group, basically anyone who is willing to give money can advertise on FB.

During the initial years of its conception, FB was facing a lot of losses. Their monthly electricity bill reached astounding heights. The amount of data stored in its database is humungous, which adds to the maintenance costs. But, in September 2009,FB declared that it had turned cash flow positive for the first time. The estimated revenue is $550million, gathered from a variety of sources- from deals with Microsoft to Self Service Ads.

On the flipside, the online advertising rates are slowly decreasing as the internet is slowly getting saturated with ads popping out of each and every corner of the page. Also, facebook is planning to make capital investments to support its growing need for data storage.

Recently, there were mini controversies surrounding celebrities in India. Making a mountain out of a molehill, the focus was on tweets posted on twitter. This micro-blogging website is increasingly growing popular. One astounding thing about this pretty nascent stage website is that it has no advertisements.

Twitter hasn’t attempted to profit from its popularity yet, leaving everyone guessing about how the start up will pay its bills after it exhausts its venture capital. It is believed that twitter would be hard-pressed to sell advertising on its messaging service without alienating its users. Also, twitter’s co-founders, Evan Williams and Biz Stone, have indicated that advertising is low on their priority list. They have suggested they might impose fees on companies interested in mining the data about consumer preferences and peeves that pour into Twitter.

Many people ask for recommendations on twitter, so also do companies tweet about their new products. Recently, twitter announced that it will let companies monitor tweets about their products and other services for a paid service. It could become a distributer of third party apps that use twitter and take a cut in return.

Twitter is still looking to add value to its service despite which the founders have hinted that advertisement could be on their cards in the future, not now. If it does go along that path, it would probably follow the same model as facebook, that is, targeted advertising.

Twitter turned down a $500 million acquisition offer from facebook in 2008. Also, internet giant Google is showing continued interest in this very popular service. If at all twitter cannot come up with a good revenue model, its exit strategy is well chalked out.

-Rohit Bhat

Advertisements