What is the Business Model for 'New Media'?

By Gary Kim May 17, 2012
Media, whether old or new, social or linear, has become a complicated matter. Google insists that it is a technology company, even if its business model is based on advertising, this typically is the case for most media.

Facebook is a social network, yet gets in excess of 80 percent of its revenue from advertising. Facebook also serves as a way people discover interesting content, and a way people create content.

Amazon is a retailer, but much of its retailing success hinges on the content its users supply, and a growing part of what Amazon sells are content products.

Facebook may look and function like a social network for the majority of its users, but on the business side it looks almost exactly like a traditional media company. All of which has legacy publishers and media trying to “become social,” while Facebook tries to monetize its user engagement in the same way “media” companies do.

What traditional media worry about is the new competition. Facebook and Google represent new channels for advertisers, and therefore pose the danger of significant shifting of advertising away from traditional media, and towards the newer forms.

What Facebook has to do is figure out what specific forms of advertising work best for its format. And it appears the traditional display ad is not a panacea, as suggested by General Motors’ decision to halt its Facebook ad campaigns.

General Motors is pulling $10 million in advertising business from Facebook, with some reports suggesting GM has found that those ads do not help it sell cars. In and of itself, that is not a terribly big deal. Firms make specific marketing decisions all the time that do not directly bear on the value of advertising in general, or even the effectiveness of specific vehicles.

But it remains true to say that neither Facebook nor Twitter or Pinterest have clearly found the specific advertising formats that work uniquely for each of those medias. In a larger sense, neither have advertisers or ad networks found the complete answer to what works in a mobile context, either. 

On the other hand, there is a fairly universal agreement that advertising, in some form, does underpin the revenue models for those firms. All of which points out that “what” media looks like has changed. Media now includes search, social networking and user-generated media.

What remains unanswered is the degree to which that might change in the future, with revenue models extending to embrace actual commerce revenue, not just the advertising and marketing that supports a commerce revenue model.

Rakuten, which is making an investment in Pinterest, makes a business out of e-commerce.  “While some may see e-commerce as a straightforward vending machine-like experience, we believe it is a living process where both retailers and consumers can communicate, discover, and curate to make the experience more entertaining,” says CEO, Hiroshi Mikitani. “We see tremendous synergies between Pinterest’s vision and Rakutan's model for e-commerce.” 

In other words, at some point in the future we might see “media” revenue models adding, or morphing into “commerce” or “retailing” business models. In some significant ways, that already is happening, with Google Play, Facebook Credits or iTunes, all of which are commerce operations.

Edited by Brooke Neuman

Contributing Editor

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