Welcome to Modern Age Trojan Horses. Welcome to Facebook, Twitter & Youtube.

Brands aren’t happy with the current state of social media. In fact, they feel slightly cheated.

But in order to understand Facebook, Twitter and Youtube we must first understand how they built their gigantic user bases, how they financed operations in their infant years and what’s their current path to greatness. For the sake of simplification I will refer to them as internet titans from here on.

THE AGE OLD GAME OF VENTURE CAPITAL

Great majority of high-tech consumer web companies is financed by venture capital. In this industry, there is a well-known term called multi sided markets. It is normally used to describe products serving two distinct sets of users: in case of our internet titans it’s consumers on one side and advertisers/brands on the other side. And it is a widely known fact within the venture capital industry that if you are building a global consumer focused service, your biggest problem lies in attracting users – not brands. Even more, most often brands would, deceived by a shiny offer of a potential new marketing channel, help you build that user base if you can show some early stage traction.

They would entice us all with an opportunity of collecting likes, followers and subscribers – basically giving away their rich audiences, for free.

That’s exactly what happened with our internet titans. They weren’t profitable until very recently (as of this writing, Twitter still isn’t). In fact, they didn’t really care about making money in the early days – instead, they were laser focused on acquiring users as quickly as possible. As soon as that phase was over and they had proven that they have a product that is engaging and organically attracting a lot of people, they started rapidly hiring “armies” of partner managers. You know, people that go out “in the field”, engage with partnering brands and persuade them that their service is the next marketing golden egg. They would entice us all with an opportunity of collecting likes, followers and subscribers – basically giving away their rich audiences, for free. Well, almost for free…

LET’S USE BRANDS TO HELP US BUILD THE NEXT SOCIAL PHENOMENON

The story above worked, of course. Brands love new opportunities to present their products and potentially attract new users. Who wouldn’t? Who could resist a new potentially super engaging service with free access to its rapidly growing user base? Drop everything else and run as fast as you can. And that’s what we all did.

Fast forward a few years and we are in 2007-08, when brands were busy forming new social media units with a simple goal: acquiring more followers and likes. Because, hey, the more followers and likes we have, the bigger our “free” marketing reach is. Even better, if we can get users from our different channels to like us on Twitter and Facebook we will be able to reach them for free – forever. This strategy worked perfectly – especially for our dear internet titans. Brands started to compete with each other over who will attract bigger vanity number of followers. We started plugging social media links into all our communication channels: emails, websites, sales material, physical stores, even our own offline ads.

For example, below is a Whole Foods ad. It could as well be a nicely executed ad for Facebook.

Whole Foods Ad Promoting ... Facebook

Whole Foods Ad Promoting … Facebook

THE NETWORK EFFECTS START TO KICK IN

Facebook and Twitter both successfully closed their growth engine loops. They nailed product features and managed to organically attract more and more users. With users and individual partner engagements came brands and you can guess what happened. Yup, brands, with their huge arsenal of marketing power and knowledge managed to drive even more users to our dear internet titans.

Network Effects for Facebook, Twitter by Intercom

Network Effects for Facebook, Twitter by Intercom

It was 2012. Facebook was preparing for its imminent IPO and desperately needed to find a scalable and profitable business model. And just like that, we started to see the shape of a Trojan horse – Facebook quietly rolled out a significant change to their News feed algorithm that resulted in significantly lower organic reach of brands and introduced a new way of amplifying that same reach through paid posts. Let me reiterate this one: all of a sudden, brands had to start paying to reach people they have already desperately fought to like/follow them.

Of course, the change outraged big brands that have invested years in attracting huge followings on Facebook. Some big brand owners like Mark Cuban came out to vocally protest against Facebook’s sneaky tactics of quickly changing it’s News feed algorithm. General Motors, for example, went as far as to say that they will not advertise on Facebook at all.

Brands are captured with a lot of money sinked downed the drain in their efforts to capture the biggest possible social media audience.

Today, this has become the norm. Big brands have to pay thousands of dollars to sponsor a SINGLE post update to show up in their fans’ feed and Facebook continuously introduces new changes that reduce the reach of organic posts (last big change happened in December of 2013). And Facebook has become almost too big to neglect. Brands are captured with a lot of money sinked downed the drain in their efforts to capture the biggest possible social media audience.

And Youtube? Well, the stories about them first funding independent MCNs (Multi-channel networks) “partners” like Maker Studios, just to later blatantly copy them, steal their secret sauce and offer unreasonable revenue cuts, are already legendary (here is Jason Calacanis’ must read rant on this topic).

WHICH TROJAN HORSE IS AT THE GATES TODAY?

There are several new social media phenomenons in the media spotlight right now: Vine, Snapchat, Whisper. They are all in their growth stages, acquiring users and, of course, not caring about money.

So, tomorrow, when that fresh slick Snapchat partner manager comes into your office – don’t be surprised. Play with their product, engage and test it out. But naivety about their interests can be costly – their bills will come, eventually. After all, there is no such thing as free lunch.


P.S. – That said, there is one channel on internet that doesn’t have gate-keepers collecting “internet” taxes. At the same time it’s actually one of the earliest killer “apps” of internet itself: email. It’s awesome – its power lies in the open nature of internet protocols and it has so far outlived all the other centrally controlled social networks. Guess where your Myspace fans are today? Long gone to the next hot thing. Friendster? – Friendster, who? Email addresses from 1998? In your email subscription list.

Do something awesome for your users, regularly show up with relevant offers and they’ll be happy to hand you permissions to their inboxes. And they are yours forever – your only job is to be relevant and constantly earn the privilege of your customers’ inbox “real estate”. Unfortunately, too many people fail at this step lately (hint: we are here to fix it).

P.S.S. – Next week I’ll come back and talk more about email – where it is and what brands can do today to leverage the power of this single standing independent marketing channel. Subscribe to our email list and be among the first to receive our next blog posts!

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  • http://huify.com/ Josh Harcus

    Great post! Definitely excited to see what you guys begin to create in the near future.

  • jmarovt

    Thanks a lot Josh for kind words! If you have more thoughts on the blog or style (since you’re from the industry), please share it with me, feedback is always welcome.