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Social Media: Why It Will Change the World

While social media tends towards the small, there is one thing that has become big as a result, and this is data. We now all live within a thousand datasets, each one of which is like a compass bearing on our identity. This fact is overturning all our concepts of privacy, data protection and the significance of information.

It is tempting to look at platforms such as Facebook and Twitter and see them as mildly irritating teenagers that have yet to grow up, develop adult sensibilities and start conforming to the realities of the real world. Many journalists, judges and politicians take this view I believe. It is rather less comfortable to imagine Facebook and Twitter as the vanguard of something that is going to remake the world and change its realities. But social media is going to do this and outlined below are the reasons.

For 600 years we have lived in a world where distributing information was expensive and our approach to managing information was therefore restrictive. Information was a scare and precious resource because the channels it had to live within made it so. News was edited down into 30 second segments, marketing was edited down into 30 second ads and trust was imprisoned within institutionalized mediators (news organizations, banks, universities, encyclopaedias). The big shift has happened because social media liberates information from restrictive means of distribution -- it has meant that information has become free in both a monetary sense and a mobility sense -- and this is why lots of things are going to change.

Why trust is changing

We live in a society where most of the available trust lives in institutions -- brands, banks, governments, universities. The reason we do this goes back to Gutenberg and his printing press. Before Gutenberg, it was harder to trust. People either had to rely upon individual experience or upon forms of tradition and practice, most of which had their roots in forms of oral culture. Gutenberg created a print culture and what this did was allow us to trust things which lay outside of the narrow boundaries of personal experience (as well as questioning our trust in the hitherto established traditions and practices). In effect, printing made it possible to start to build reputation amongst audiences of people. Put another way, printing allowed us to add scale to trust. The catch was that the tools needed to do this -- the tools of publication -- were expensive and thus could only live within the hands of institutions (or rather institutions such as the media, evolved in order to exploit the opportunity these tools presented).

But now that the tools of publication are no longer expensive, trust is leaking out of institutions and it is shifting into processes. Wikipedia is the classic example. We don't trust its entries because we trust the institution of Wikipedia, as we do with the institution that is Encyclopaedia Britannica. We trust its individual entries only in-so-far as we trust the process that has produced them. We used to trust a news story because we trusted the institution from which it came. And because of the cost restrictions inherent in the medium this institution had to operate within, a news organisation created trust by editing down what it presented as the truth. It therefore shields us from much of the available information, or crunches it down into an 'interpretation' of what we should think. When the cost restrictions are removed what happens is that news stops being a finished product and becomes a raw material and we can start to apply a process-based assessment to how we define its truth. Rather than seek to define the truth, or accuracy, of any particular bit of information by excluding what we consider untrue (or not worthy of publication), we can assess where any individual bit of information sits in relation to the whole dataset of relevant information. It is an approach I call the probability curve of news. We can see what information sits at the margins and what sits within the mainstream and the reason we can do this is because we can access and process, the whole dataset. We don't have to edit things away in order to squeeze the truth (or a version thereof) into 800 words or 30 seconds. We don't need an editor, we need a processor. News organizations that realize how to deal with news as a raw material will survive in some form. Those that don't will die.

But it is not just news, let us take banking. A bank is simply an institutionalized mediator of trust. It sits in the middle between people who have money and people who want it. Creating the trust necessary for these people to transact between themselves was difficult and this is the problem that banking was set up to solve. If you are lending money, you don't have to trust the borrowers, you just have to trust the bank. But now we have peer-to-peer lending and what these lenders provide is a process that allows you trust individual borrowers: trust has shifted from an opaque institution to a transparent process.

Why marketing and corporate reputation is changing

Marketing may seem like a rather marginal issue in terms of changing the world, but we live in a consumer society where the advertising dollar drives the world of media and therefore subsidizes much of the information currently in circulation. Social media liberates advertisers (brands) from the requirement to talk to audiences. Marketing has always been based on the assumption that we talk to consumers or customers as though they were an audience, but this was because the only channels we have had to reach them were audience-based channels. Social media doesn't 'do' audiences: it connects individuals or small groups. Facebook was designed to help geeks get girlfriends, and you don't need an audience of girlfriends. Facebook was not designed as a marketing platform, although it is trying to turn itself into such in order to be relevant to the marketing dollar (or is that in order to continue to make the marketing dollar relevant?) and sustain a market capitalization that currently sits around US$60 billion.

Most brands have not figured this out yet. Instead they see the challenge as building audiences within social media, so that social media can thus continue to work as a vehicle for audience-based approaches: hence the obsession with generating likes and followers. But I say if you want to reach a lot of people, get an ad don't get a Facebook page. Traditional media is a high reach, but low engagement game, whereas social media is a low reach but high engagement game. It comes down to what I call The Three Per Cent Rule. This states that you are only ever going to reach three per cent (and usually much less) of your audience via social media. This is fine, provided you then do something with this three per cent that creates value. The value challenge in this space is not about channel and message, it is about behavior identification and response. You don't target consumers or customers, these people identify themselves via their behavior, which is frequently about asking questions or complaining. You create value on account of how you respond to this behavior and pushing content at them, no matter how 'engaging' you think it might be, is almost never going to be the right response. Until organizations recognize that there are now two worlds -- the world of the audience and the world of the individual -- which require totally different approaches, they are never going to be able to operate effectively within the social digital space.

Why business models are changing

Craig Newmark (he of Craigslist) has said probably the most sensible and insightful thing about money and business models in the social digital space. Given that Craigslist was eating the lunch of the multi-billion dollar classified advertising market, he was asked why he was not a billionaire. He simply said "I don't need that much money." Now Craig may have meant that personally, he didn't need piles of cash, but what he equally could have meant was that it didn't take that much money to run Craigslist . Classified advertising is only a multi-billion dollar business because it needs to sustain the multi-billion dollar cost of the distribution model that is newspaper printing. Craigslist is just a good idea, some geeks and some server space - not expensive or scarce commodities (except the good idea bit).

As the publishing industry is finding, when you cross the digital divide you cannot take the money with you. The reason for this is that the costs don't come with you either, unless you continue to drag them with you via the need to subsidize expensive distribution technologies. It is very easy to make money in the digital space, just not with business models dragged from the old space.

Facebook currently has the opposite of this problem. Like Craigslist, Facebook is just a good idea, geeks and server space. Facebook's problem is that the Wall Street boys who had to put a valuation on it dragged a model with them from the old space. The number of Facebook users is an order of magnitude greater than any regular audience for a traditional media platform. Crunch these sort of numbers through any variant of the old media platform model and the valuation number that therefore comes out is either enormous or vast. As a result, Facebook's value was set accordingly high as was its requirement to generate a level of revenue. Despite the fact that this revenue was not apparent at the time, the logic of the model the Wall Street boys applied would dictate that this was simply because Facebook had yet to work-out how to realize its revenue potential. What has never really occurred to anybody is that perhaps the model is wrong. Perhaps we need a Craig Newmark type of model that looks at Facebook not in terms of what it can make as a traditional media platform, but what it costs to deliver the service it users want (not the service advertisers want): the cost of the geeks and the server space, plus a premium for having the good idea. After all, the revenue assumptions of traditional media platforms are based on costs of delivering the service -- but because the cost of distribution technologies has been high this has determined the revenue per user equation.

Ultimately, the real business issue here is one of scale. When social media touches a business model, what happens is that scale starts to leak out of it. The music business is a good example, having been one of the first to become dis-intermediated by social media. The music business has been shipping scale at a rate of knots for some years now. You don't have new big bands any more, or if you do, they don't last more than a year or two. Smallness has proliferated and the space has shattered into thousands of niches because you don't need money (scale) to distribute music. Music itself has become a utility: you don't own it as a product, you simply rent access to it. Dealing with a world where the scale advantages are disappearing is probably the biggest business challenge that social media deals up.

Taking an example from the consumer goods sector, Procter & Gamble is successful because it uses its scale to negotiate advantageous terms in renting space within expensive information distribution channels. It is the world's largest advertiser. When the channels become free, where is the scale advantage? The answer lies in the concept of utility and commodity. Modern marketing is based on the idea of taking what is essentially a commodity product produced at volume and persuading consumers that it is unique, special and therefore premium. The scale advantage this conferred is being eroded, but advantages still remain, just not within the realms of marketing and branding. Mass production still offers scale advantages - although the fact that China is everyone's factory undermines this to an extent - as does the ability to negotiate terms with retailers or suppliers. There now has to be a compelling reason to be big, because it is now much easier to be small. Social media is putting scale back into a box labelled utility and commodity, which actually is where it lives best.

Why information itself is changing

While social media tends towards the small, there is one thing that has become big as a result, and this is data. We now all live within a thousand datasets, each one of which is like a compass bearing on our identity. This fact is overturning all our concepts of privacy, data protection and the significance of information. Edward Snowden's recent exposure of the way governments spy on citizens is small beer compared to the implications inherent in the ability of algorithms to identify behaviors based on information which people want to make public. There is no such thing as inconsequential information any more: all information has a consequence. Google says that we can be anonymous, but this is a bit like saying driving is 100 per cent safe, right up until the moment you have a car crash. Indeed, we can all swim in a sea of Google anonymity right up until the moment the data fisherman gets us on the hook. That's the way Big Data works. Social media may well challenge institutions and deliver greater power into the hands of consumers and citizens, but Big Data could be used to redress the balance. Either way -- the world is going to change as a result.

These ideas and one or two others are explained in more detail within the e.bookSocial Media and The Three per Cent Rule: How to succeed by not talking to 97 per cent of your audience.

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