.
Illustration by Ian Whadcock
Other companies have discovered the same thing. Kogi BBQ, which has several trucks serving Korean food in Los Angeles, now has over 52,000 followers on Twitter and uses the service to tell customers where they can find its vans each day. Sprinkles, a cupcake bakery with stores all over America and nearly 94,000 fans of its Facebook page, posts a password to that page each day which can be redeemed for a free cake by a certain number of visitors to its shops. Such offers can attract a lot of attention. A survey of 1,000 heavy users of social networks and other digital media conducted in August 2009 by Razorfish, an advertising agency, found that 44% of those following brands on Twitter said they did so because of the exclusive deals the firms offered to users.
As Kogi BBQ and Sprinkles show, social networks are arguably having an even greater impact on small businesses than on the big league. By giving entrepreneurs free access to their audience, services such as Twitter and Facebook are putting corporate tiddlers on a par with behemoths such as Starbucks and Dell when it comes to broadcasting messages to a mass market. They have also created what Steve Hasker of Nielsen calls “the world’s biggest, fastest and most dynamic focus groups”, which can be a boon to entrepreneurs without fat research budgets.
Some small businesses are already using social networks to generate new ideas. After spending time on Twitter, employees at Cordarounds.com, a small American clothing company, noticed that many folk twittering in their area were using bicycles to get to work. So the firm produced a new line of trousers, dubbed “bike-to-work pants”, with built-in reflective materials that make wearers more visible to traffic while cycling at night. And of course it used tweets to get the word out about its new creations.
“Follow me on Twitter” signs are appearing on the doors and windows of small businesses in other countries too. A survey last year by O2, a mobile-phone operator, found that some 17% of Britain’s small businesses were using Twitter. Many of the firms that responded said they were doing this to attract new customers. Some reckoned they had been able to save up to £5,000 (over $8,000) a year by cutting out other forms of marketing in favour of the networking service.
Charging for batteries
The connections made possible by social networks are helping to create new businesses as well as promote existing ones. When Henk van Ess, a Dutch technology consultant, posted a complaint about the short lifespan of his iPhone’s battery on LinkedIn a couple of years ago, one respondent suggested that he contact China BAK Battery, which produces a small, plug-in battery for the iPhone. Impressed with the product, Mr Van Ess told members of his online network about it and was soon handling orders for them. After a while he formed his own company, 3GJUICE, to produce a plug-in unit for the iPhone that incorporates the Chinese firm’s battery.
Mr Van Ess’s firm is tiny, but social networks such as Facebook and MySpace have also served as launching pads for much bigger outfits. Among the largest of these are companies such as Zynga, Playfish and Playdom, whose popular online games run on the big networks’ platforms. Some of these games, such as Zynga’s “FarmVille”, have attracted millions of players and produced mountains of money for their creators. Zynga says it has been profitable almost since it opened in 2007, and last month the business attracted an investment of $180m from a bunch of prominent financiers convinced of its potential. Many of the social-games companies are on a hiring binge, creating hundreds of new jobs at a time when the economy around them is in the doldrums. Their experience provides an insight into how social networks can help propel small businesses to much bigger things.
Like most games, the ones produced by Zynga and its peers appeal to people’s natural competitive instincts. Leader boards and a host of other features allow players to show off their status within a game to their friends. But the games also encourage lots of co-operation among players, who can build rapport by, say, sending virtual gifts to each other or handing virtual currency to new players when they join a game. “The best virtual goods have real currency,” says Mark Pincus, Zynga’s boss. He reckons that the games have become so popular because they combine fun with the various ways to strengthen relationships that Facebook and other networks have brought online.
Better than the real thing
Social games have also become extraordinarily popular because they cleverly exploit those relationships. Once someone has signed up for, say, “Mafia Wars”, another Zynga invention, they are urged to invite their friends to join too. And players’ gruesome successes in such games are regularly posted to their personal page on Facebook, which can be seen by all of their friends. Thanks to such wheezes, online games benefit from a powerful network effect. “Café World”, which gives users the opportunity to run their own virtual restaurant, launched on Facebook at the end of September and within a week had attracted a mind-boggling 10m players.
This astonishing growth has been helped by the fact that social games are free to play. The companies make their money by selling digital goods in the games, by carrying advertising and by getting players to sign up for marketing promotions. Surprising though this may seem to some, virtual goods such as swords, tractors and even digital boyfriends are much in demand. After users of its “Sorority Life” game complained in an online forum that the game lacked virtual men they could date, Playdom quickly introduced some last November. Over 10m of the boyfriends were promptly snapped up, with a few players buying as many as 500 each. Some paid for their digital darlings with virtual credits won in the game, but others stumped up over $5 a time for their beaux.
The rise of the social-gaming firms has not been without controversy. Last year Zynga came under fire from TechCrunch, a Silicon Valley blog, for allowing misleading marketing offers to run on its site. The firm subsequently removed them. But such hiccups have not dented interest in social gaming: last November Playfish was snapped up by Electronic Arts, a big video-game publisher that thinks the business is going to be huge. It may well be right. ThinkEquity, an investment bank, reckons that revenues in America from social games could hit $2.2 billion by 2012, a big leap from last year’s $375m.
Admittedly this is an extreme example of the benefits social networks can bring to small businesses. Rewards for outfits such as Mission Pie will be far more modest. But if they were added up across an entire economy, they could have a significant effect on growth. What a pity, then, that many small firms are reluctant to take the plunge into the social-networking world. A survey of 500 small businesses in America conducted by Citibank last October found that most of them had not used online networks at all because they thought they would be a waste of time.
From The Economist print edition of 28 Jan 10 with thanks to Paul Brown
Illustration by Ian WhadcockSmall businesses are using networks to become bigger
“HEY first peaches of the season are here. Come and get your peach pie @10am.” Simple tweets like that have helped Mission Pie, a small shop in San Francisco, drum up interest in its mouth-watering array of sweet and savoury pies. As well as twittering about its wares, the store also alerts customers to poetry readings and other events it organises. Krystin Rubin, a co-owner of Mission Pie, says the business had just 150 or so followers for a while after one of its bakers started sending out tweets almost a year ago. Then that number suddenly shot up to over 1,000. Over the past few months business has been very brisk and Ms Rubin reckons Twitter deserves part of the credit. “It has a sort of street credibility that’s not there with traditional media,” she says.Other companies have discovered the same thing. Kogi BBQ, which has several trucks serving Korean food in Los Angeles, now has over 52,000 followers on Twitter and uses the service to tell customers where they can find its vans each day. Sprinkles, a cupcake bakery with stores all over America and nearly 94,000 fans of its Facebook page, posts a password to that page each day which can be redeemed for a free cake by a certain number of visitors to its shops. Such offers can attract a lot of attention. A survey of 1,000 heavy users of social networks and other digital media conducted in August 2009 by Razorfish, an advertising agency, found that 44% of those following brands on Twitter said they did so because of the exclusive deals the firms offered to users.
As Kogi BBQ and Sprinkles show, social networks are arguably having an even greater impact on small businesses than on the big league. By giving entrepreneurs free access to their audience, services such as Twitter and Facebook are putting corporate tiddlers on a par with behemoths such as Starbucks and Dell when it comes to broadcasting messages to a mass market. They have also created what Steve Hasker of Nielsen calls “the world’s biggest, fastest and most dynamic focus groups”, which can be a boon to entrepreneurs without fat research budgets.
Some small businesses are already using social networks to generate new ideas. After spending time on Twitter, employees at Cordarounds.com, a small American clothing company, noticed that many folk twittering in their area were using bicycles to get to work. So the firm produced a new line of trousers, dubbed “bike-to-work pants”, with built-in reflective materials that make wearers more visible to traffic while cycling at night. And of course it used tweets to get the word out about its new creations.
“Follow me on Twitter” signs are appearing on the doors and windows of small businesses in other countries too. A survey last year by O2, a mobile-phone operator, found that some 17% of Britain’s small businesses were using Twitter. Many of the firms that responded said they were doing this to attract new customers. Some reckoned they had been able to save up to £5,000 (over $8,000) a year by cutting out other forms of marketing in favour of the networking service.
Charging for batteries
The connections made possible by social networks are helping to create new businesses as well as promote existing ones. When Henk van Ess, a Dutch technology consultant, posted a complaint about the short lifespan of his iPhone’s battery on LinkedIn a couple of years ago, one respondent suggested that he contact China BAK Battery, which produces a small, plug-in battery for the iPhone. Impressed with the product, Mr Van Ess told members of his online network about it and was soon handling orders for them. After a while he formed his own company, 3GJUICE, to produce a plug-in unit for the iPhone that incorporates the Chinese firm’s battery.
Mr Van Ess’s firm is tiny, but social networks such as Facebook and MySpace have also served as launching pads for much bigger outfits. Among the largest of these are companies such as Zynga, Playfish and Playdom, whose popular online games run on the big networks’ platforms. Some of these games, such as Zynga’s “FarmVille”, have attracted millions of players and produced mountains of money for their creators. Zynga says it has been profitable almost since it opened in 2007, and last month the business attracted an investment of $180m from a bunch of prominent financiers convinced of its potential. Many of the social-games companies are on a hiring binge, creating hundreds of new jobs at a time when the economy around them is in the doldrums. Their experience provides an insight into how social networks can help propel small businesses to much bigger things.
Like most games, the ones produced by Zynga and its peers appeal to people’s natural competitive instincts. Leader boards and a host of other features allow players to show off their status within a game to their friends. But the games also encourage lots of co-operation among players, who can build rapport by, say, sending virtual gifts to each other or handing virtual currency to new players when they join a game. “The best virtual goods have real currency,” says Mark Pincus, Zynga’s boss. He reckons that the games have become so popular because they combine fun with the various ways to strengthen relationships that Facebook and other networks have brought online.
Better than the real thing
Social games have also become extraordinarily popular because they cleverly exploit those relationships. Once someone has signed up for, say, “Mafia Wars”, another Zynga invention, they are urged to invite their friends to join too. And players’ gruesome successes in such games are regularly posted to their personal page on Facebook, which can be seen by all of their friends. Thanks to such wheezes, online games benefit from a powerful network effect. “Café World”, which gives users the opportunity to run their own virtual restaurant, launched on Facebook at the end of September and within a week had attracted a mind-boggling 10m players.
This astonishing growth has been helped by the fact that social games are free to play. The companies make their money by selling digital goods in the games, by carrying advertising and by getting players to sign up for marketing promotions. Surprising though this may seem to some, virtual goods such as swords, tractors and even digital boyfriends are much in demand. After users of its “Sorority Life” game complained in an online forum that the game lacked virtual men they could date, Playdom quickly introduced some last November. Over 10m of the boyfriends were promptly snapped up, with a few players buying as many as 500 each. Some paid for their digital darlings with virtual credits won in the game, but others stumped up over $5 a time for their beaux.
The rise of the social-gaming firms has not been without controversy. Last year Zynga came under fire from TechCrunch, a Silicon Valley blog, for allowing misleading marketing offers to run on its site. The firm subsequently removed them. But such hiccups have not dented interest in social gaming: last November Playfish was snapped up by Electronic Arts, a big video-game publisher that thinks the business is going to be huge. It may well be right. ThinkEquity, an investment bank, reckons that revenues in America from social games could hit $2.2 billion by 2012, a big leap from last year’s $375m.
Admittedly this is an extreme example of the benefits social networks can bring to small businesses. Rewards for outfits such as Mission Pie will be far more modest. But if they were added up across an entire economy, they could have a significant effect on growth. What a pity, then, that many small firms are reluctant to take the plunge into the social-networking world. A survey of 500 small businesses in America conducted by Citibank last October found that most of them had not used online networks at all because they thought they would be a waste of time.
From The Economist print edition of 28 Jan 10 with thanks to Paul Brown
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