Can Social Media Analytics Services Provide A Revenue Stream For Social Networks?

Guest post by RR Mohan Kumar where he looks at the possibilities of social media analytics services becoming a new revenue stream for social media networks

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Editor’s Note: This is a guest post by RR Mohan Kumar, who is in second year MBA at Bharathidasan Institute of Management, Trichy. His academic interests lie in Marketing and HR. In this post, he looks at the possibilities of social media analytics services becoming a new revenue stream for social media networks.

There are currently many “social media analytics” services in the market. Using this, someone checking for “Air Asia” can find all relevant user comments and reviews posted in public groups and similar such forums in social media. He will be able to listen and analyze the general perception and mood by the online community on Air Asia.

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Currently social media (SM) sites don’t charge these software service companies, but these companies make huge money by offering their services to brands. A basic package of an Indian Social media analytics company costs about 25,000/- for checks on a limited number of posts in social media. But this situation is likely to dynamically change.

In the near future, social media sites will start charging these software companies for letting their sites be used as a search engine and for providing exclusive data with customized analytics solutions. It will not only be a good revenue stream but it will be implemented, once many of these social media analytic services gain traction in the market.

Another business war between the online community is in the offing and it will happen for the below mentioned reasons:

Currently the social media industry is in an emerging/growth phase. They exist in all categories from “Facebook” which is broadly focused to “houzz” which is a vertically focused social media site. So the users are left with the need to log into multiple sites for different needs. This period of fragmentation will be over soon in a natural cycle when the industry consolidation begins due to maturing of the Industry. Consolidation will start happening when all these niche sites will combine into players that can address a majority of the online user needs unlike the current fragmented state. So it will be a case wherein mergers and acquisitions will take place and several vertically focused sites will either get acquired or merge with the bigger players, rising from inability to maintain product/service leadership and to remain profitable.

The existing players will be forced to leverage each other’s complimentary strength and to tap into a much larger shared user base for increased revenues through Ads and other services. So once a few of these newly formed social media networks start charging, will this business model automatically gain traction? Consider the scenario where mobile operators seek revenue share from Google in Kenya. In India, ISP providers seek revenue sharing agreements from Mobile network providers. These players have incurred a lot of capital expenditure on installing physical infrastructure such as networks and fiber optic cables. But given the fact that they are being used literally for free and given the range of utility services that they provide, they will be forced to ask for adequate compensation.

A similar scenario is waiting to happen in the social media analytics industry where the usage of analytics and its applications is set to explode and billions of dollars of economic transactions are waiting to take place. At least in the case of the telecom industry, the companies have alternate methods to overcome this issue by planning to use content delivery networks or by building their own networks through a Joint Consortium. The same wouldn’t be possible in the social media space as it will be a stretch of corporate, business and functional resources to even make an attempt to do so.

This also calls for business friendly regulations to ensure a level playing business environment for all stakeholders concerned.

But what if a site like Facebook comes out with a paid version of insights or partners with bigger monitoring products since whatever data social monitoring tools are showcasing are being provided from Facebook. In fact Facebook has its own free insights. Tools/Apps are building their product over it.

Many of these analytic services are highly customized and each has its own advantages and niche specialty areas depending on the quality of their analytic engines that they have designed. In the future depending on the need and usage they could even be designed and built in-house for an Industrial conglomerate though it will be a great stretch of resources.  It wouldn’t be possible for any social media network to accommodate so many highly customized requests for information and it would be a business imperative that even if in case they launch one, there will be a high degree of standardization that will be required.

My given case points to the long term strategic changes that could happen in the social media (SM) industry and the need for analytic companies to be better prepared to face such dynamic industry changing scenarios. Also please note the fact that there is a high change of governmental policy regulations coming into play (given the socio-economic changes that social media has brought into people’s lives), that will deter many of these networks from any monopolistic business practices that Microsoft enjoyed in its heydays and the hefty fines it had to pay to the European Union, later.

Also there are possibilities where companies will resist from using a social media network’s own applications as they could be sharing any strategic insights which might come in conflict with the business goals of the social media network’s own business goals. E.g. Assume Nokia (Microsoft) has a market insight to launch a new wearable device that it gleaned from social media analysis of its Facebook page and from observing online user interaction. Facebook, which is looking for new product development, could exploit such prime information for achieving its own business goals and getting the first mover advantage.

Moreover, having a common analytic engine which doesn’t belong to any existing social media network’s services would be more preferred as they will enable easy interface between different social media networks. If not, it will be a much bigger challenge for usage of such analytic data from one SM network and verifying the data across different platforms. It will also necessitate that SM network providers follow a common industry standard which is unlikely given the huge competition between them for market share.

For e.g.: a site like Pinterest or Vimeo which has more Image  and Video oriented info, couldn’t be used for cross-verification of information on Twitter which is more famous for short tweets if they don’t follow a common standard. The analytics engines of each these companies will follow different standards and framework to try to leverage their own strength and to desist customers from using a rival social media network’s analytics services.

Social media sites will not let themselves be used as a highway for free by analytic companies which make good revenue and don’t pay these social media sites. Hence the scenario wherein they will start charging money (The amount that they charge will depend on the amount of customization that is required and possible) the day they start providing exclusive data to analytic companies, is not too far distant in the future.

Image courtesy: MBAnetbook