COMM0011 – Blog Post # 1 – How Long Can a Business Run on Free?

This afternoon there were two articles which caught my eye in the “SmartBrief on Social Media”, a regular (free) newsletter I subscribe to. The first headline was: “IPO filing: Twitter is unprofitable despite strong mobile business”; the other article headline was: “Facebook announces that ads are coming to Instagram”.

There is no doubt both Twitter and Instagram are extremely popular social media outlets. Both companies started offering their services for free. To many, free is good. In my opinion, offering their services for free is one of the many reasons why Twitter has been able to build their user base to 218 million tweeters and Instagram can boast over 80 million users.

Today, Twitter is in the process of becoming a public company and is hoping to raise $1 billion from their Initial Public Offering (IPO). Despite Twitter’s posted revenue of $253.6 million, they still haven’t turned a profit yet. Facebook bought Instagram for $1 billion and has yet to see any revenue from it’s purchase. I don’t think it matters who’s bank account the money comes from, a billion dollars is a lot of money. If anyone does or has invested in either of those companies, they are expecting a profitable return on their investment.

Which brings me to my initial question. How long can a company run on free? When I was still knee high to a grasshopper, my mother taught me in this world there are no free lunches. Granted, social media has changed our world, but at the end of the day there are still no free lunches. So how are Twitter and Instagram expected to provide their investors a profitable return on their investments? Advertising. Hmmm, advertising? One problem with advertising is many social media consumers don’t like it. It is possible with the implementation of advertising now, fickle users could switch to the next social media outlet offering their services for free with no advertising; or it could inspire the user to tweet, snap, post, or blog their displeasure at the idea of constant advertising bombardment.

As a social media content creator myself, eventually I would like to get paid for my efforts. Actually, my bank, my hydro company, my equipment supplier, my internet space provider, my wife and a slew of other folks would like it if I also got paid, so I could pay them. Because I would eventually like to get paid for my efforts, I have wondered how will that happen? Once again advertising to the rescue! I will be charging advertisers a fee to latch on to my content. Like Twitter and like Instagram, advertising is a great idea. Provided you can get a company willing to pay for someone else’s free lunch. Both Instagram and Twitter chose to initially offer their services for free and then introduced advertising once they established a large enough user base. I’ve taken a slightly different route with the hope of one day being in a positive position – earning a profit from the content I create ($1 billion would be nice, but I will be more realistic and hope for a return in the thousands). My content has included advertising since day one. Unfortunately, because I don’t have enough subscribers yet, I am giving away the advertising for you guessed it – free. From my listener’s perspective, the advertiser was always there and it will not shock the system once I build enough of an audience to actually make it worth an advertiser’s investment.

What do you think is the best strategy, introducing advertising after the fact, or from the start? Do you tune-out advertising, or are you interested in it if it is relevant to your needs? Or, because it’s on the web, should everything be free – free of charge and free from advertising? Please let me know your thoughts in the comment space below.

4 thoughts on “COMM0011 – Blog Post # 1 – How Long Can a Business Run on Free?

  1. Hi Michael,

    That’s a really good question – Do you introduce advertisers first or after developing a user base? As writers, we would probably expect to work for free at first. It’s just the name of the game, quite literally, making a name for yourself first, then charging people money for the service provided. The article I quoted in my blog, “Understand the Impact of Social Media” by Jason Burby said it best: define success on your terms then set your goals. That’s what I intend to do from now on.

    I’d rather explore what I am trying to achieve with social media, look at my current situation to see what resources I have to use, figure out what skills I need to implement my plan and also whom I can ask for help. Of course, the next step is to define the first step and take it. Taking this course is a good start for me because it will help me consolidate what I have learned and develop a more cohesive plan towards success.

    Powerful questions are the first step in understanding one’s situation. Thanks for clearly articulating some important ones related to social media.

    Happy posting,

    Mike Falcone

  2. You pose some interesting questions, Michael. Having just written about Facebook advertisements for my first blog as well, clearly it is something many people want to talk about! I remember when I first joined Facebook to no advertisements … life was so simple, then. But, all good things come to an end and ultimately, social networks are bound to their bottom line. If it means putting up with a few months of complaints from users on ads to help keep the network alive and thriving, the choice is pretty easy for executives to make.

    As a consumer of these ads, I am not all surprised that the networks have had to develop this way and generally speaking I am not as irritated by the advertisements as I used to be. In fact, at some point I start to feel sympathy for advertisers; advents like PVR make commercial watching obsolete, and most YouTube videos allow you to skip an advertisement after only 5 seconds. It makes the job of advertisers more difficult, but also can lead to creativity and ingenuity (look at the way Old Spice ads have been embraced or the popular “Poo-pourri” ad going around YouTube now, which marries an advertisement with a social media tool).

    It’s quite funny to think about how annoyed people get when they receive targeted advertisements; meanwhile, the expectation for niche and individualized content has never been higher. While consumers may want desired content at their fingertips, there’s something to be said for developing a patience and toleration for these advertisements. The internet may be a “free space”, but that means it is free for everyone – advertisers included – and people who are annoyed by advertisements should probably know by now that nothing in life is free.

    So I say, advertise away. People will expect it. And if they’re annoyed by a third-party advertisements, chances are they wouldn’t be willing to pay for your content, anyway.

  3. Thanks for this post as I too struggle with where I stand on questions related to advertising. From a personal point of view, I hate having ads intrude on my online experience. However, from a professional point of view, I do like knowing there is an opportunity to to get my organization known to people in the community. As for ideas on how to increase your subscribers, viral video seems to work, check out Dancing Matt: http://www.wherethehellismatt.com/ =)

  4. On the personal side, I can’t stand the advertisements that clog social media sites, but it is hard to argue from a business perspective. You know that if there is money to be made, advertisers will get involved. Think of when you used to go the theatre and actually looked forward to the previews for upcoming movies. Now, you dread the commercials that come first. Social media is now like that too. You want the content, and you want to share your opinion…but to interact, you need to accept that advertisements are now part of the game. This twitter message was brought to you by……..

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