Social Networking Industry Is Entering a Period

Social networking industry is entering a period of maturation, and this will have significant impacts on the way we approach entering this market. Maturation of the social media industry comes in two forms. The first is that user growth is beginning to slow for many social networks, and there are fewer niches for new entrants to occupy and build a user base. Google + famously failed to attract a user base when it targeted Facebook, because consumers have shown unwilling to belong to too many social networks. MySpace has similarly had difficulty revitalizing its business because Facebook drew so many of its users away. The other area of maturation that is critical to our market entry strategy is with respect to advertising, the key revenue driver in the industry.

For us to build our social media brand, we must understand where consumers stand with respect to saturation and differentiation of their social media. Arguably, there is little room for competition against the largest social media sites, since many of them have cornered their niches. Social media is one business where having a critical mass of users is critical to defending against new entrants. As a result, we should work a niche that does not already have a site with a critical mass of users.

Chekeris (2010) notes that consumers are also maturing in their relationships with social media. How users approach Facebook has been subject of recent analysis. Where once games like Farmville were popular on the site, such applications have begun to wane, and consumers are using social media for more serious tasks, like career management, purchasing and more as a forum for idea exchange. It is not only the industry that is maturing, he notes, but the consumers who make use of social media. This has significant implications for social media users, and potential market entrants will need to understand both the changing ways in which consumers are using social media and the changing ways that advertisers are using it as well.

Some companies have struggled with the new social media paradigm, especially makers of games. Other companies have thrived, because they have found that the new usage patterns are easier to sell to advertisers. Even Facebook is beginning to experience significant revenue increases as it capitalizes on its loyal user base and finds better ways of reaching advertisers.

Strategic management in the social media industry remains focused on developing new revenue models while defending against potential new entrants. The existing players and new entrants alike believe that differentiation from other social media networks is imperative to success. The different industry leaders have adopted significantly different strategies, however. Facebook makes constant changes to its site in order to make it more attractive for advertisers. Twitter's functionality, on the other hand, has changed little since it was first introduced.

Perhaps the biggest change, therefore, in social media strategic management is the increased emphasis on professionalization of site operations and the development of revenue streams. A few years ago, it was reasonable that most social media outlets were trying to build their critical mass of users, because such an approach was thought to be critical to long-run success. In addition, such sites often had easy access to capital because the industry has long been thought to have tremendous revenue potential. With the maturation of the industry has come a bigger push for both cost control and revenue generation, with less emphasis on user attraction. Indeed, user attraction tends to be self-reinforcing, with the large user bases of existing social media networks serving to attract new users. Our new site, however, will need to be managed in such a way that emphasizes both the building of a user base, the control of costs, and the development of strong revenue streams.

Our current business strategy is to offer unique features and access to exclusive content, which serves both to attract users and as a unique revenue stream. Information, in particular the sharing of it, is one of the key elements of social networking. By leveraging our control over content, we also leverage control over revenue management (Levin & McGill, 2010). Our social networking site will need to execute on this premise flawlessly in order to build up a user base quickly enough to succeed against our larger competitors.

The maturation of the industry means that there is not as much flexibility for our startup social network as their might have been for first-movers. In particular, they had the time to build up their users bases without the need to develop revenue streams. We do not have that luxury, which has led to our subscription business model. Also, by offering customer something even when their friends are not the site, we can attract those initial users in order to build our user base. The maturation of the industry also means that we will need to be effective in our advertising revenue development. The user interests will be understood well enough for targeted ads, because social networking companies make more money from highly-targeted ads than they do from generalized ones.

Our strategy is expected to give us a competitive advantage because we will offer a unique proposition to the consumer in the form of our exclusive content. For the advertiser, our measures of consumer consumption of that content will provide finer and more accurate targeted of their advertisements. We will not have a cost advantage, nor are we attempting to. Our social network has a membership cost, unlike most others. The strategy is to compete as a differentiated provider, not a cost leader. This differentiation is key to success, since it will allow for better targeting of our consumers, and will also serve to attract consumers in a way that the cost-leading (i.e. free) sites cannot match.