As much as Silicon Valley's ethos is the constant pursuit of creating value, eventually the byproduct of this process (and the stakeholders involved) will also require the creation of revenue.
In the past year, we have seen these dynamics play out in the social networking sector across a variety of companies at different stages of growth, maturity, and monetization.
While the early phases of social media success tend to focus on metrics around user growth and engagement, every social media company must eventually figure out some sort of revenue stream (unless they prefer to go the acquisition route).
Most social networking companies eventually monetize through advertising, and more specifically through "native advertising" – or non-standard ad units that are specific to the platform and are organically integrated into the content experience.
Facebook and Twitter, both mature, publicly traded companies with well-established revenue streams, have been the pace-setters in social by effectively monetizing their respective native ad units, Sponsored Stories for Facebook and Promoted Tweets for Twitter.
Linkedin also introduced their Sponsored Content ads, and while its advertising business has not yet monetized to the same degree as Facebook and Twitter, it also has a strong value proposition to advertisers given the quality of its business-oriented audience.
Other established players like Tumblr and Pinterest are in the earlier days of monetizing through advertising, but they too have native ad units that integrate into their content experience.
Social Evolving in the Direction of 'Mobile-First' Experiences
But all of these networks are children of the desktop web. True, they are all in various phases of transition towards mobile as the dominant medium for consumption, but their networks were all built around a fixed Internet experience.
Fast forward to today, and we've seen another evolution in the social networking space that centers around “mobile-first” networks. Social brands such as Instagram, SnapChat, and Vine are all recent examples of mobile-first success stories, which represent an evolution in social media by focusing on the single core utility of capturing and disseminating interesting content captured through mobile phone cameras.
Each of these services has built massive audiences in a very short period of time (70 million users age 18+ for Instagram, 25 million for Vine and 21 million for Snapchat), something that has clearly been enabled by being mobile-first.
With people carrying their smartphones around with them 24/7, the opportunity to capture a slice of life on camera is always within arm's reach. This has created an environment of fast and simple content creation that is fueling the experience of these networks and driving their rapid growth.
Consider that Instagram already has an audience the size of Twitter in the U.S., and both Vine and Snapchat have reached audiences about half that of Tumblr and Pinterest in little more than a year of existence.
Turning Eyeballs into Dollars... Natively
While these newer networks aren't necessarily under extreme pressure to monetize just yet, all are beginning to work with brands in experimenting around marketing. In each case, they will likely be looking to native advertising models to pave the way toward monetization.
The trick with native advertising is that the ad units, by definition, are not one-size-fits-all. Such ad models typically only work for companies who can deliver ad impressions at significant scale.
Because the popular social networks not only amass a large number of users, but those users are also highly engaged, this affords the opportunity to deliver billions of ad impressions every month. It is this sort of scale needed for advertisers and marketers to want to play ball with an individual media company.
Native ads also dovetail particularly well with the mobile environment because they are typically delivered within the content stream. Hence, the mobile-first networks have a built-in monetization advantage, providedthey can reach a level of scale to become viable peddlers of native ad inventory.
Since Instagram, Snapchat, and Vine all provide visually rich environments that reach strategic audience segments (read: young people), they offer platforms that are clearly compelling to marketers. These mobile-first networks are rapidly changing the social networking space and creating a significant amount of value very quickly for their users.
Value for users means potential value to marketers, and when marketers turn their attention to an emerging platform, it's only a matter of time before these networks can turn on the revenue faucets.
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