Social Networks, Advertising and Antitrust

Posted by Social Science Research Network

Social Networks, Advertising and Antitrust

Catherine Tucker (Massachusetts Institute of Technology) & Alex Marthews (Digital Fourth)

Abstract:     In the last five years, social media has become a dominant force on the Internet. Social networking websites, the most popular of which is Facebook, accounted for 20 percent of all time spent on the Internet in 2010. However, it is not clear that so far this extraordinary growth has created an antitrust issue. There are two reasons for this. First, consumers do not pay for using these services on most social networking sites. Second, firms are not spending large amounts of money trying to access consumers using these new channels. This is despite the fact that there are obvious marketing applications for a form of media that allows companies to ob-serve potential consumers’ social interactions. The reason that firms have not spent much money is not because they think that social media is not important. Instead, it is because most firms’ commercial strategies for social media have emphasized the success of “earned reach,” a strategy by which a brand develops its pool of subscribers organically and also aims to expand that pool by seeing existing subscribers share links with their social networks. Recent academic research, however, has called into question this non-commercial strategy. Eytan Bakshy et al. emphasize that the kind of organic sharing that is presupposed by a noncommercial strategy is far more uncommon than previously supposed, and that only rarely are commercial messages reliably conveyed via social networks. A recent study shows that to attain the goal of virality, an advertiser may be forced to forfeit its message’s commercial usefulness. Similarly, another study shows that when firms try to establish an organic social media presence, they are more often successful at engaging their own employees rather than their client base. Consequently, advertisers may be required to communicate their commercial message on social networks through the medium of paid advertising.

A new type of advertising, called “social advertising,” has recently appeared on sites like Facebook and LinkedIn. “A social ad is an online ad that ‘incorporates user interactions that the consumer has agreed to display and be shared. The resulting ad displays these interactions along with the user’s persona (picture and/or name) within the ad content.’” The development of the social ad represents a profound technological advancement for advertisers. Advertisers now have the ability to harness the force of an individual’s social network to target advertising and attract their audience. Other work has shown that such “social advertising” can double the effectiveness of an advertiser’s ad. This increase in efficacy bears significance because, in recent years, advertisers have often dismissed social networking websites as simply sites hosting “paid media” — in other words, paid advertising. The popular and marketing press have contributed to this with headlines like “Online Social Networks and Advertising Don’t Mix” and “Facebook Ad Click-Through Rates Are Really Pitiful.” The results of one study suggest, however, that “as social advertising develops this will change swiftly.” Specifically, social networks will have the ability to use their access to unique social network data to enlarge their share of advertising dollars. This Article asks whether a rapid expansion of social advertising will have potential antitrust implications. Part I of this Article presents definitions of social network websites and of the relevant market definition for advertising on social networking websites. Part II discusses network effects in social media advertising. Finally, Part III addresses the issue of antitrust and privacy in social networks.