{"id":995,"date":"2013-10-22T09:10:38","date_gmt":"2013-10-22T08:10:38","guid":{"rendered":"https:\/\/blog.iese.edu\/economics\/?p=995"},"modified":"2015-03-17T11:57:17","modified_gmt":"2015-03-17T10:57:17","slug":"the-power-of-social-recommendations-and-twitters-advertising-strategy","status":"publish","type":"post","link":"https:\/\/blog.iese.edu\/economics\/2013\/10\/22\/the-power-of-social-recommendations-and-twitters-advertising-strategy\/","title":{"rendered":"The power of social recommendations and Twitter’s advertising strategy"},"content":{"rendered":"

Online social networks<\/b> are one of the success stories of the Internet era.\u00a0Facebook\u00a0Inc. has roughly 1.15 billion<\/b> monthly active users and its market capitalization of $131 billion<\/b> is close to double the valuation of Goldman Sachs and approximately equal to the valuation of\u00a0BP.<\/p>\n

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\"An<\/a>
An electronic billboard on the Thomson Reuters building welcomes Facebook, Inc. to the Nasdaq. Author: ProducerMatthew<\/figcaption><\/figure>\n

An example of a direct value that users of online social networks receive is the recommendations of their friends such as Facebook\u00a0\u201clikes\u201d. In order to get an understanding of this value, consider the following scenario. Suppose you become interested in living a healthier lifestyle and are searching for a book to educate yourself. While searching online you come across an advertisement for a particular book. At the same time a friend of yours, whom you know to be thoughtful and to make careful recommendations, advocates a different book on the same topic via your favourite social networking site. Which book would you rather buy?<\/p>\n

Many of us would trust and follow the suggestion of our friend rather than the advertisement<\/b>. Hence, there is a case to be made that social advertising, which makes use of the social influence effect, has a value that goes beyond that of conventional forms <\/span><\/a> of advertising<\/b>. And<\/b> where there is value, there is money to be made<\/b>.<\/p>\n<\/div>\n

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Twitter official account on Twitter<\/figcaption><\/figure>\n

Facebook\u00a0introduced sponsored stories<\/b>, a type of social advertising, in the fourth quarter of 2011. Since then its quarterly advertising revenue per monthly active user has grown 38% globally and around 63% for users in the U.S. and Canada<\/b>. Compare the case of\u00a0Facebook\u00a0with that of Twitter Inc., another tremendously successful online social network platform currently making daily news due to its upcoming\u00a0IPO. Surprisingly, Twitter<\/b> has no social advertising<\/b> offering but instead allows only for conventional targeting based on the interests of users, for example. This gives rise to a good and a bad conclusion:<\/p>\n