1.4 How Social Media Companies Make Money

This may be a review for some of you, but it’s important to understand how the basic monetization models of advertising work as they apply to traditional media, digital media, and social media companies, with only slight variations among them. First of all, think about the so-called “unspoken agreement” among publishers, audience, and advertisers as a three-legged stool. Publishers (the first leg), such as streaming services, television stations, or social media platforms, provide content that is of interest to their audience (the second leg). These audience members, viewers, readers, or users are the most important part of the equation. To pay, or at least help pay, for the content that the audience wants to see, the publisher offers space, time, data, clicks, or views to advertisers (the third leg) who are willing to pay the publisher for space, advertising, listings, or messages to be shown to the publisher’s audience.

Since different publishers have different types of content that appeal and attract different audiences, advertisers often use several different channels (not TV channels but media channels) in combination to reach their desired target audience. As members of the audience, we agree to have these commercial messages interrupt the content we want in order to receive that content for free or at a lower cost.

1. Publishers: One should never forget that all publishers are in this game for the money. They are creating and providing content to serve the needs of their second most important customer—the audience. Only then, when the audience is engaged in the content, will the audience choose to stick around long enough to serve the needs of the publisher’s most important customer—the advertisers. It is the advertisers who pay the bills, and therefore they are the most important customer to all publishers or content providers.

2. Advertisers: These businesses come in all shapes and sizes, from a new local restaurant that wants to attract customers on opening weekend to a global multinational company that sells chemical fertilizers to farmers and wants to assure the public and government officials that its products are safe and reliable. The one thing that all advertisers have in common is that they are looking for a way to reach their specific target audience with messages that deliver the highest impact at the lowest possible cost.

When magazines, TV networks, or radio stations decide what content they are going to publish (or broadcast), they always consider their audience and try to produce material that most of their audience will choose to consume. This meant that traditional media programming was designed to appeal to the broadest possible demographic. Programs that were too “niche” or “specialized” often didn’t get produced, or if they did, they didn’t last long since their “advertising appeal” wasn’t large enough to attract enough advertisers to keep the program on the air. The TV and radio programs, magazines, and newspapers that thrived during this time period were those that consistently had large and homogeneous audiences. Audiences that advertisers wanted to reach. This is how the programming content was created; it was funded by advertisers wanting to reach the greatest number of potential customers who would see the commercials and ads interspersed in the program content.

With social media, it’s different, but not that much different. The publisher (social media platform) attempts to provide content that their users (audience) will spend time with in order to generate the highest levels of engagement from their target audience. But instead of one magazine article or one television program being crafted to meet the entertainment needs of the greatest number of viewers at one time, in the world of social media, each user is served personalized content designed to keep them entertained and engaged based upon their past online behavior.

And this specialized entertainment content is also combined with individualized and personalized advertising content. Think of it this way: When the LA Dodgers play a home game, 56,000 people cram into Dodger Stadium to have a single, live entertainment experience. And the two million people watching the game on ABC TV are having a single, shared media experience. But those same 56,000 fans in the stadium could all pull out their phones during the seventh-inning stretch, open their Instagram app at the very same moment, and they WOULD be having 56,000 totally different online, content, media, and advertising experiences.

That is the power of social media. It takes the monetization of mass media and makes it personal. It harnesses the power of massively powerful computer indexing, storage, and content curation and combines it with individualized content and targeting. Fifty-six thousand separate television experiences happening at the same time in one baseball stadium. Two hundred million different social media experiences happening in the United States every single day.