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By Thomas Baekdal - July 2016

How a Growth in Social Engagement is Also a Drop in Reach and Loyalty

Earlier this week, Jessica Guynn, Silicon Valley reporter from USA Today tweeted:

Mark Zuckerberg says ranked feed on Instagram has gotten people to spend more time on the app and share more.

The problem, however, is that this isn't what we hear from the Instagrammers. Instead, I am hearing from Instagrammers that they are having a harder time with engagement overall.

So how can we have these two very conflicting messages at the same time, and why do we also see this on all the other social channels that have started ranking our streams (like Facebook, Twitter, etc)?

Well, it's actually quite simple. Think about it like this.

Imagine that you have a big supermarket, where each person buys, on average, 28 items across 11 brands on each visit. Now imagine that the supermarket isn't pleased with that, they want this number to grow (and who wouldn't), so they start to optimize how each product is presented, how they are mixed, and how people experience them.

The result is a success (according to the supermarket). A month later it announces that people are now buying 31 items(10.7% growth), across 13 brands(18% growth).

Sounds pretty good right?

But what if we then look at the sale per manufacturer? With 28 items across 11 brands, they sold 2.55 items per manufacturer. But now, with 31 items across 13 manufacturers, they only sell 2.38 items per manufacturer(a 7% drop in reach).

Also, now that people are exposed to more manufacturers, since the supermarket is now designed to favor as wide a reach a possible, the loyalty and connection that people feel towards any specific brand is now much less, which means that it is even harder to stand out from the rest.

So, Mark Zuckerberg is right that, overall, Instagram has had an increase in engagement. But this doesn't mean that each Instagrammer on an individual level is benefitting from it (it's often the reverse).

The problem is that all the social channels are optimizing for the same thing that the supermarkets are optimizing for, which is 'scale for the sake of scale'.

We see the same on Amazon, where they might claim that people are now buying more, even though the revenue per publisher is going down. We see it on Spotify. On Netflix. In fact, we see it on every single channel that is based on scale.

And one area where we see it a lot is with advertising. Google, for instance, repeatedly report an increase in total ad revenue, while at the same time are also reporting a decrease in ad revenue per click.

In other words, as a platform it is earning more and more. But for each individual publisher displaying the ads, they are making less.

The reality is that scale rarely benefits the individuals.

The reason is that to win as an individual (publisher/brand/person), you need to focus on getting picked. You need to be 'the chosen one' so whenever people do engage, they engage with you.

And, as an individual, you also benefit more from a narrow market rather than a wide one. It's far more beneficial for you to be picked within a narrow of publishers, because that means you will have to share the total market revenue with less of your competitors.

Again, think of the example I gave you above with the supermarket. It's much better to be one of the 11 brands that people pick, than to be one of the 13 brands.

Of course, this isn't exactly where the internet is heading, nor is social media in particular. With Facebook, Instagram, Snapchat, Twitter and all the others, they are trying to widen the market as much as possible.

This is a good thing while during their initial exponential growth. So many positive things have happened because of sharing. For instance, this site probably wouldn't exist today if it wasn't for Twitter, nor would BuzzFeed exist without Facebook.

But the problem is that once this exponential growth is replaced by optimized growth, our social channels turn into supermarkets, where each new optimization ends up being detrimental to the individual brand or publishers.

The outcome of this is that we, as publishers, are forced into two opposing directions.

We can either 'play the game' and try to optimize for the same things that the social channels do. But remember, when we do this, we enter into a market where we have to focus on scale to make up for the lack of individual relevance and loyalty.

And the scale game doesn't end. It keeps demanding more and more scale, which is why we now hear publishers talk about having billions of views, even though they are not making that much actual money.

The other way is to focus on getting picked, and to make sure that you are picked in such a way that you don't have to share that choice with a huge platform of scale. This is why publishers are now finding new opportunities with high-end newsletters. They are things that people can pick, and the platform is exclusive to that choice (your newsletter is only about you).

As a media analyst, it's hard to say which one is better. Each of them has opportunities and threats. But most of all, these two paths have now become so divided that they are not even in the same market anymore.

I'm reminded of a tweet I came across that said:

Side-by-side to tell you a lot about media today: Facebook ad revenue +63% this year / New York Times ad revenue -12% this year

And he is right. This does say a lot about the media, but as I commented, they aren't really the same thing.

Publishers like the New York Times are slowly focusing more and more on getting picked, and developing a relationship via channels where that choice is exclusive. As such, New York Times gained 67,000 new subscribers during the last quarter, bringing them to 1.4 million subscribers in total.

That's amazing.

And we see the same with newspapers like the Guardian, who gained 50,000 new members while also experiencing a loss overall of £69 million.

This doesn't mean the New York Times or the Guardian is doing fine, they aren't. They are in a terrible state. But it does show you this split that we see in the future market of media.

On one hand we have the market that is based on scale, where success is defined like with supermarkets (like what Zuckerberg is focusing on). On the other hand we have the market based on being picked, and driving a tremendous level of focused value through that individual choice.

Both work, but for very different reasons and with very different business models. The problem is with all of those who get stuck in the middle.


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Thomas Baekdal

Founder, media analyst, author, and publisher. Follow on Twitter

"Thomas Baekdal is one of Scandinavia's most sought-after experts in the digitization of media companies. He has made ​​himself known for his analysis of how digitization has changed the way we consume media."
Swedish business magazine, Resumé


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