SOCIAL MEDIA RICHARD CHEN HANSEL FUNG COLTON GABARA WEIJING GAO Social Media at a Glance

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SOCIAL MEDIA RICHARD CHEN HANSEL FUNG COLTON GABARA WEIJING GAO Social Media at a Glance SOCIAL MEDIA RICHARD CHEN HANSEL FUNG COLTON GABARA WEIJING GAO Social Media at a Glance Total Internet Active Social Unique Active Mobile Population Users Media Users Mobile Users Social Users +10% +10% +4% +17% 7.395 3.419 2.307 3.790 1.968 Billion Billion Billion Billion Billion The social media industry is growing quickly. Fueled by globalization, high growth of internet users, and improving functionality of social media platforms, social media growth will continue to see high growth in or near double-digits for at least the next few years. Although internet and mobile penetration in developed countries are high, billions still remain unconnected in other parts of the world. Social media companies must quickly develop and improve their products in order to remain competitive in this fast- paced industry. The risks can be great, but the returns can be even greater with the proper execution. Data and Images from WE ARE SOCIAL as of January 2016. % Change is YoY. Social Media and S&P 500 (3 Year) 200 180 Facebook 160 140 120 S&P 500 100 80 SOCL LinkedIn 60 40 Twitter 20 0 Social Media Index S&P 500 Facebook Twitter LinkedIn PLATFORM BUSINESSES Source From Harvard Business Review: “Pipelines, Platforms, and the New Rules of Strategy” Pipeline vs Platform Pipeline Platform Raw Materials Producers Consumers Intermediate Goods Manufacturing Providers Owner Marketing & Sales PLATFORM After-sales service Platform Business Components Producers Consumers Value and data exchange and feedback Creators of the platform’s Buyers of users Offerings (for example, Of the offerings Apps on Android) Interfaces for the platform (mobile devices are Providers providers on Android) Controller of platform IP Owner And arbiter of who may Participate and in what ways (Google owns Android) PLATFORM IMAGE FROM HBR Article “Pipelines, Platforms and the New Rules of Strategy” Pipeline to Platform Resource Control Resource Orchestration . Pipelines try to gain advantages through controlling scarce and valuable assets such as mines, real estate, and intangible assets like intellectual property. Platforms have networks of producers and consumers as their most important assets. Internal Optimization External Interaction . Pipelines try to maximize the capabilities of its internal labor and resources to create value. Platforms facilitate interactions between external producers and consumers to create value. Emphasis shifts from dictating processes to persuading participants. Customer Value Ecosystem Value . Pipelines seek to maximize the lifetime value of individual customers of products and services. Platforms seek to maximize the total value of an expanding ecosystem in a circular, iterative, feedback-driven process sometimes subsidizing one type of customer to attract another type. Supply-side Economies of Scale Key Factors Massive • Controlling resources Fixed Costs • Ruthless increase in efficiency to Higher sales Reduce volume increase volume and lower as prices to leads to much costs as possible achieve lower higher sales • Fending off challenges from any average cost volume of business of the five forces Low Marginal • Build large moat around the Costs business that protects it from competition and channels competition towards other firms Demand-side Economies of Scale Value Network Effect Social App Demand User Other Useful Networking Development Aggregation Interface Tools Technologies that help networks expand can create the network effect where companies attract more platform users because more and more people are using it. The larger the network, the better the match between supply and demand, which means the richer the data that can be used to find matches. The greater the scale, the greater the value, which will attract more platform users, which creates even more value, and so on like a feedback loop. Forces Within the Ecosystem Exerted by Ecosystems • Consumers, producers, and providers may defect from the Successful platform businesses can move aggressively platform if their needs can be better met elsewhere. They into new industries with little warning, which can be may even compete with the platform. troubling for pipeline businesses. • E.g. Zynga planning to migrate users to its own platform from Facebook, Amazon and Samsung, providers of the Android platform, trying to create their own O.S. Accretive Behavior • Consumers and producers can exchange roles to generate value for the platform. For example, users can drive for Uber one day and ride for it on another day. Depletive Behavior • Providers on a platform can decide to compete with the owner. For example, if Apple were to not allow Facebook on its mobile devices and force its own social media platform. Focus on Interactions Platform businesses focus on exchanges of value between producers and consumers on the platform. This unit of exchange can be very small with no money exchanging hands, such as a thumbs up or a view of a video. However, these small interactions determine the strength of the network effects, which in turn determines the success of the business. It is therefore essential to focus on ensuring the value of the interactions are high by focusing on the right type of interactions and nailing down the core interactions first before focusing on volume and moving on to other interactions. Access and Governance For pipeline businesses, strategy is about erecting barriers. For platforms, it shifts to eliminating barriers of production and consumption to maximize value creation while still guarding against threats. Open Architecture Noise • Allows players to access platform resources like app • Too much access can destroy value by creating “noise”. developer tools to create new source of value These are inappropriate or excessive low-quality content that obstruct interactions. Open Governance • Allows players other than the owner to shape the rules of trade and reward sharing on the platform. Fair Reward is Key • If rewards are not shared properly, potential platform participants have no incentives to enhance value even though they have the capability to. Metrics Interaction Failure • If someone tries to get a ride using Uber but finds that there are no cars available in the area. If this happens often enough they will stop using the platform, drivers will have less customers and are more prone to quitting, which results in lower ride availability, and so on. Engagement • Content sharing, repeat visits, ratio of daily to monthly active users, how long people spend on a page, whether ads are clicked on, and more. Match Quality • Poor matches between what the user needs and the producers weaken network effects. Negative Network Effects • The positive loop can go the other way. For example, congestion from high network growth can discourage platform participation. Understand Financial Value of Communities 1 billion to 37 billion? It’s important to look beyond traditional financial metrics when looking at platforms. The worth and potential of these companies in their growth stages are often not measured in the same as pipeline businesses. DATA AND ANALYSIS Industry Segmentation Casual Social Networks U.S. User Segmentation • These companies include Facebook, MySpace, Google Plus, Yahoo Pulse, Microsoft So.cl. 2.5% Other Social • Responsible for majority of revenue in the industry even if 5.7% Networks it only accounts for a bit over half of the users. Professional Social Networks • Advertising is the main source of revenue, and platforms utilize user data to target specific customers. Blogging Social Networks • Consists of two formats, traditional blogging networks like Blogger and Wordpress, and microblogging such as Twitter and Tumblr. 37.6% • In the early stages of recognizing revenue potential, but still Blogging Social limited due to content limitations. Networks Professional Social Networks • Majority of revenue comes from products offered to job 54.2% seekers and employers. Casual Social • This segment is projected to grow as other social networks Networks seek to incorporate similar career features. SOURCE: WWW.IBISWORLD.COM Industry Competition Internal Competition U.S. Market Share • Competes based on total cost ownership instead of initial price. Security, updates, and support are critical factors. 5.6% • User-friendly interface is especially important for networks Other with broad audiences as it doesn’t frustrate novice users. 15.1% • Compatibility and ubiquity are important. People want to LinkedIn access these networks however and whenever they want. Barriers to Entry • New SNS must be unique to be able to compete with the giants of the industry due to the network effect. • Monetization of users is an issue especially for newer SNS • Development of new SNS can be initially costly, and speed 13.2% is also necessary to take full advantage of new markets. Twitter Globalization • As user base grows in developed countries, SNS will seek to 66.1% grow their revenue abroad leading to competition with Facebook foreign SNS • Factors such as regulation may be increasingly complicated. SOURCE: WWW.IBISWORLD.COM Key Operating Factors Wages U.S. Sector vs. Industry • Specialized workers are absolutely essential in this industry, which has led to high compensation especially in the form of non-monetary arrangements such as employee options. • In order to remain competitive increased research and development is needed leading to larger headcounts and higher wage costs for SNS in the foreseeable future. Other Costs • Depreciation can be significant as SNS need to maintain
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