The Economy of Social Media

Social media platforms -- Facebook, Twitter, you name it -- are businesses just like any other. Although we sometimes we don't think of these sites like businesses -- perhaps because they're free to use -- the fact of the matter is they require significant resources to create, launch and operate, and they're ultimately out to make money. Thus, the emergence of social media has had a significant impact on our economy.

Creating a social media site requires a significant investment of time and money. First and foremost, programmers and developers need to develop the apps/sites. This isn't an overnight process, and can be expensive to fund. Launching and operating the sites also requires monetary investment, like other businesses. After all, employees need to be paid, there are web hosting fees, and marketing/advertising isn't free either. As a result, many web entrepreneurs turn to venture capitalists for the extra cash, or find other avenues to the money like crowdfunding. 

Making that money back can be a challenge for some sites, as the bulk of revenue for most social media companies comes strictly from advertising (Miller). But since social media is engaging, personalized and shareable in nature, many advertisers see more value in these mediums than they might in television or print. The result is stiffer competition for ad space, which drives up prices and makes social media profitable. This is a win-win for consumers, advertisers, and the sites themselves. After all, consumers use the sites for free and get ads targeted to them based on their interests, advertisers get directly in front of their target audience, and social media sites make the money they need to stay up and running.

So how do social media sites as a whole impact our economy? It depends on who you ask. McKinsey Global Institute published a study that estimated social media adds from $900 billion to $1.3 trillion in value to our economy (Hardy). This value comes mainly from "added productivity" that social media sites provide, like increased communication and improved consumer focus. However, an infographic from LearnStuff.com disputes this, claiming that social media sites actually cost the economy $650 billion due to "decreased productivity," namely workers slacking off on the job (Shore). It's a pretty shocking contrast. Though there's probably truth to both of the productivity claims, it's extremely difficult to pinpoint a number for how social media affects our economy. 

There's no doubt that having a social media page is beneficial for business. It's free, easy to use, and allows companies to connect with their loyal consumers while exposing themselves to new markets. The real question is this: is the benefit of a social media business page enough to offset the loss in productivity causes by employees using personal pages on the job? It's undoubtedly a difficult question to answer, but if it could be figured out it'd likely shed a clearer light on the real impact of social media on the economy as a whole. 

The relationship between social media and the economy is a tricky one, but it's important we get better at understanding it. When sites like WhatsApp sell for multi-billion dollar price tags, we have to pay attention. We may not know what, but something important is happening to our economy.

References:

Hardy, Quentin. "McKinsey Says Social Media Could Add $1.3 Trillion to the Economy." Bits. New York Times, 25 July 2012. Web. 26 Feb. 2014. 

Miller, Miranda. "Social Media Revenue Forecast to Hit $16.9 Billion in 2012.” Search Engine Watch. N.p., 26 July 2012. Web. 26 Feb. 2014.

Shore, Jennifer. "Social Media Distractions Cost U.S. Economy $650 Billion.” Mashable. N.p., 2 Nov. 2012. Web. 26 Feb. 2014.