If You’re Thinking of Launching a Social Media Startup, Please Don’t.

B.J. Mendelson

February 25, 2013 · 4 minutes read

Uncategorized

There are a couple of things that worry me. One being zombies.

But, I also worry about startups. Especially startups in the social media space. The funding for these companies is plentiful because there is a serious bubble, and the only people who are going to survive it are the wealthy idiots who like to publicly proclaim that there is no bubble. Investors are like herd animals, and none of them want to look stupid, so of course they’re going to say that. If they didn’t, how would they make their money back?

I’d like to think I know a thing or two about the social media space. I’ve been researching it since 2006, and I wrote a book called “Social Media Is Bullshit” that St. Martin’s Press put out recently. Plus, I’ve been living on the Web since 1998. I’ve seen it all, and as I detail in the book, a lot of the stuff you see today that’s so “groundbreaking”? Yeah we had that in the ‘90s, too. It just looked crappier.

To be clear: It’s not that the ideas behind these startups are bad, but you’re talking about a space that’s entirely dependent on advertising for revenue, and one that is completely monopolized by a few key players. On top of that, you have legions of knowledge workers, who were all laid off during The Great Recession, running around pretending to be “social media experts.” So there’s this whole deeply rooted (and false) mythology that blankets everything here.

Between these two factors, the social media industry is boned, and you should proceed very carefully if you’re thinking about diving in.

The dirty secret you all probably know already? Although the tools are cool, and you can do cool things with them, “cool” doesn’t equal business model. I’m not saying you can’t make money, and I’m not saying someone can’t make money on a place like Facebook, but it’s extraordinarily difficult to replicate what works in a way that can be standardized and executed in the same way you would buy a radio spot.

And that lack of standardized execution means the results vary so wildly that it’s hard to sell businesses and others to invest their advertising money given less expensive options that yield better results in a down economy. Given that almost all of these companies are dependent on advertising revenue, I hope you can see the problem here.

Consider this: InsideFacebook reported in March that there were 42 million Facebook pages. Just this week, Facebook announced that 500,000 of those 42 million pages used the promoted post feature, and of that 500,000, 70% came back to promote another one. Facebook did not mention how many pages existed on the service when they made this announcement. Think about this. 500,000 out of 42 MILLION pages used the promoted post feature. 70% of those 500,000 pages came back to do it again. That’s 350,000 pages out of 42 MILLION. We’re not talking huge numbers here. This number is slightly larger than the largest audience Marc Maron, of the awesome WTF Podcast, told me he received for his most popular episode when I interviewed him for “Social Media Is Bullshit.”

Also, you have to wonder if Facebook is being honest about the number of people who actually do another sponsored post after the first one. Especially because you’re asking people to pay for accessing people who already expressed an interest in them. It’s asinine at best, deeply cynical and manipulative at worst.

As I documented in the book, social media is a total loss leader for large corporations, too. They’re more or less there out of obligation because journalists need pageviews to survive and nothing racks up the pageviews like a post about an anti-semitic Arby’s employee on a Twitter bender. That means the people with the deepest pockets don’t really want to spend any money, and they don’t have to since setting up and running an account is free.

So, I hope you can see why I’m worried. And what should you do if you run a social media startup? Get out while you can. Seriously. Get out, unless you’ve already figured out a way to charge people for what you’re offering, or make money in another way that doesn’t involve any sort of advertising.

The space is too crowded, the business model is busted, and there are few instances where social media has proven to do much of anything it’s been advertised to do. Unless you count stunts like giving shares to a certain pop star, having them sign an NDA, and then racking up users by trotting that person out to the press while the celeb plays up how much they like your service.

I urge you, my strange and interesting friends in the social media startup space, to think carefully and critically about what you’re working on and what it does differently from your entrenched competitors. And, if you can’t find an alternative business model that’s not dependent on advertising or ridiculous schemes  à la Ralph Kramden? I’m not the only one who should be worried.  

46 Comments

  1. I don’t see the main argument of this article? Is “social media” overhyped? Yes. Is it that social media companies don’t make money? FB is early in its revenue pushing well over $1B per quarter. With so much data, I have no doubts that they can earn out at least $6/quarter/user. Tagged is doing amazing numbers too.

    Will the world need social media experts? Yes. You need people who understand Facebook, Twitter, Tumblr, Pinterest, Reddit and others. Similarly, you need people who understand SEO. Although you might argue that experts are not required and that it “should” function without said experts, it doesn’t and won’t ever. Everything has its shortcuts and social media does require expertise.

    Regarding startups in the social media space. I strongly disagree. The industry is still young and has plenty of opportunity. Clever people will figure out social media for other verticals. Perhaps the world doesn’t need many more platforms but the world always seems to surprise me (ie. SnapChat, Instagram etc.). There are additional verticals social media-esque startups can go down such as concerts, corporate, video sharing even to beer-focused facebooks. That being said, it’s not as easy as others make it look.

    Money-wise, there is plenty of monetization methods that have been gaining popularity especially on mobile. You do just have to be clever.

    I do feel like the author here is calling out startup first-timers who think they can build “the next Twitter.” I tend to agree here.

  2. I disagree that startups can’t jump into the social media space. There is no reason that any type of startup shouldn’t have a legitimate way of monetization. That’s just bad reasoning, but not bad because it’s built to be in the social media space.

    Be different. There is *always* room for something different.

  3. I feel like this should be titled: “If you are thinking about starting a social media startup with no business model or revenue plan and only plan to grow traffic, dont.”

    In reality, that is not unique to social media, if you dont have a clear revenue plan for your startup you will likely fail regardless of industry.

      • I don’t think this is true at all. Maybe the obvious ones, but social media as an industry is still very new and most people, especially businesses, dont understand it. There are still plenty of revenue generating opportunities out there – the only difference is now it takes some creative thinking to find them.

        • If there were indeed “plenty of revenue generating opportunities out there”, I can assure you that there are small armies of smart, savvy people at Twitter, Facebook, LinkedIn, Google, Pinterest, Instagram, Vine, etc that would have uncovered one or two by now.

          But I’m anxious to hear your thoughts: Other than what’s already been tried, including but not limited to, 1) Selling ads/’native ads’ against page views/visits, 2) Freemium/Tiered paid access, 3) Subscriptions, 4) Pay-to-Play, and 5) Sale of user data to researchers and marketers …… what revenue generating categories exist that haven’t been attempted?

      • I would disagree with this statement. I believe there are several avenues that haven’t really been tapped yet, or at least formats that could encourage better revenue models. The “right” startup just hasn’t come about yet! 😉

  4. “And that lack of standardized execution means the results vary so wildly that it’s hard to sell businesses and others to invest their advertising money…” For someone who is writing for a blog that “inspires, empowers and celebrates entrepreneurs,” shouldn’t this be viewed as an OPPORTUNITY and not a reason to run away and hide.

    I also can’t stand this arguement: “Especially because you’re asking people to pay for accessing people who already expressed an interest in them. It’s asinine at best, deeply cynical and manipulative at worst.” With traditional advertising/marketing, once you’ve “gained a fan/customer” because they’ve “expressed an interest” or even bought something from you, do you now have unlimited free access to that person?!? Of course not. Why should social media marketing (especially Facebook) be any different? I’m not saying I love the way the whole Facebook marketing platform works – in fact, I agree that it kind of sucks – but the broad argument that once they’ve clicked “LIKE” on your page (whether you had to pay for it or not) now you as a brand should have unlimited free access to reaching them is asinine.

  5. “you’re talking about a space that’s entirely dependent on advertising for revenue, and one that is completely monopolized by a few key players”

    sounds a lot like television, and new networks are constantly trying to gain footholds there. Just because it is all ad-based and has strong incumbents is not a reason to be afraid.

  6. By social media, Are you talking about companies like Tumblr, Reddit, etc?
    Or companies that provide social media analytics, like SproutSocial?

  7. Free Unsolicited Advice ::

    In marketing the first rule of thumb is to establish credibility before trying to convince ….

    When I see the title, “reluctant freelance … ” I think two things … unemployed or lacking confidence … either way the impression I’m personally left with is … “Even though he’s clever … I can’t trust this guys advice …”

  8. Are you referring to social media startups as a whole, social media consultants, or social media companies trying to be “the next Facebook.” I agree that Facebook still has a lot to figure out in terms of its business model, but disagree that social media consulting an social media as a whole is anywhere near being irrelevant.

  9. Have to agree with Pat and Andrew – what makes this advertising model different than traditional forms of media? You could replace the “social media” in this post with just about any industry at all and not stray too far from the truth. Business is hard, business is risky, and only the good, well-funded, or the lucky ones survive. And even those don’t always make it. Mr. Mendelson raises great questions, but they’re questions for every startup.

  10. After attending several Technori events and Polsinelli/Shughart Angel investors Start Ups are on the rise.Yes, there are 1,000s of Ralph Kramdens in any business like restaurants. So if someone is trying to improve themselves after working 40 hrs a week on their own new idea and someone else wants to invest-JUST Go for it.There are many many freelance reporters, Papparazzi’s and dum dums as their are Internet start ups. What is a FreeLance revenue model? Papparazzi revenue model? OK, so Shut The Front Door genius.Until you can show me where Bob Parsons went wrong reselling URLs and sold it for $3.4 BILLION than give some leeway to those who work on their time, like you to try to improve their life.
    CEO Steve Tomaszewski
    http://www.REALLATV.com
    Another start up

  11. BJ has good points but also some arguments that need better framing and context. Are there too many self proclaimed social media gurus–particularly young inexperienced professionals? Yes. Are there enough pros who understand social must be integrated into a marketing communications slurpee in order for it to have an impact on results most often? No, and there is room for those people. The others are honest and well meaning, but after the excitement wears off for clients, they’ll need to show sons sort of real results or get a job where they can pick up integrated marketing skills for a couple years so they can then connect the dots better for their clients. Or do some reading so they can have a 360-degree knowledge base to help move results for corporates and not for profits.

  12. yeah man is true… I spent 9 months from my time in such a bubble (made tasks social in enterprise). At the praised tree don’t go with a very big bag, they say in my home country so I suppose best is to plant your own tree and focus on that until will have fruits 🙂

      • Its far from dead, its just open sourced – I use it daily. The development is coming along quite nicely 🙂

        But Diaspora is not developed as a regular startup with huge profits it mind, like most other projects are, so that may disqualify it a bit from your warnings which targets the classic startup.

        Because of Diaspora, my use of Facebook is shrinking every day, and some of my friends are following on as they grow tired of the “recycled likes” that facebook makes in their name without telling them.

  13. So what is the point then, just don’t start anything is basically what you are saying because google dominates search, apple/samsung dominates smartphones, facebook/twitter/linkedin social, amazon retail, walmart cheap retail, target chic retail

    • punked It’s a well known maxim of marketing that a startup is not going to beat a market leader using the same positioning as the market leader. You’ve got to create a new category that has relevant value to prospects. Your examples even recognize this; Target and Amazon differentiate from Walmart. See at least the first 3 laws of The 22 Immutable Laws of Marketing: http://www.ericsink.com/laws/Immutable_Laws_Marketing.html

      The problem with social media is there is very little one can to do differentiate that overcomes the attention span required of people who are already inundated with social media choice so creating a niche social network really doesn’t work unless there is something overwhelming compelling for the niche, and likely built on the back of existing social media networks. But those are much smaller business opportunities than most startup investors look for.

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