The atomic theory of economics states that individual people or business are supposed to be independent of one another and uninfluenced by each other’s decisions, having fixed desires and preferences. However, social media platforms like Facebook, Instagram, Twitter, and YouTube introduce a strong interconnectedness within users’ lives which proliferates communication, expression, and information-sharing. This leads to a significant influence of social media and its characteristic networking ability on local and global economies.
Oanna Anna Papachristou classifies digital social networks as belonging to a ‘small-world network’, wherein connections between individual nodes allow the process of linkage of one node to another to unfold within a small number of steps. Social media counteracts the atomic theory by strengthening collective behaviour, lessening information asymmetry, and allowing for the creation of a global network of consumers and producers who are interconnected amongst and with one another. Papachristou explores the idea of social media leading to the creation of a participatory economy, stating, ‘participants gain use-value as the result of community action’.
This article explores the ways in which social media influences the economy, namely job creation, information symmetry, advertising, urban branding, and the creation of a ‘platform economy’.
Tackling Information Asymmetry: Access to Data
Information asymmetry, wherein decisions in transactions are made with uneven access to information between two or more parties, has played a major role in competitive markets. Social media entails easy access to information, which allows brands to engage consumers in ways that were formerly inaccessible. Data provided by social media platforms and third-party analysts can help the brand identify and target specific audience demographics, and to create products likely to be used by them. Instagram’s ‘insights’ feature provided to business accounts, allows access to data on the number of posts and stories uploaded in a week, profile visits, website clicks, the number of unique accounts that encounter and interact with an account’s posts, overall audience growth including follows and unfollows, top follower city and country locations, age and gender distribution, and days and hours when follower activity and post traffic are highest. This allows for a detailed analysis and understanding of the content and products that consumers are most likely to respond to, which can then be followed by an appropriate adjustment in digital marketing strategy and product design and delivery.
Consumer grievances with products can be expressed and addressed via social media. For example, ‘review videos’ on YouTube entail unregulated discussions of product specifications and relevant audience opinions. This reduces information asymmetry and allows consumers to compare competing brands, raise issues with defected/faulty products or inefficient services, and demand specific features which may be incorporated into newer products or models. This also allows brands to directly address these grievances and understand their target demographic further.
Democratization of information through the open, transparent communication model offered by social networking platforms also allows brands knowledge of market competitors, consumer responses to products, and specific consumer needs. In a way, this ‘levels the professional playing field’. For example, The U.S. Trade and Development Agency is an independent government agency that helps companies create jobs through goods and services exports for development projects in emerging markets. Their social media followers include U.S. manufacturers and service providers, government agencies, financial institutions and overseas partners. The connections USTDA makes through platforms such as Twitter, with over 8,000 followers, lead to ‘greater exports and development impacts around the world’. Social media is used to ‘provide market intelligence and trade leads to U.S. businesses, connecting U.S. companies with export opportunities overseas’. By subscribing to the USTDA RSS Feed, U.S. companies are able to access the latest information on upcoming acquisition and procurement opportunities.
Brands may collaborate with each other or with social media users (often ‘influencers’ with substantial followings), users and influencers may collaborate with one another, and third party firms may work specifically on bridging this gap. All of these networks lead to lessened information asymmetry for and amongst both producers and consumers.
Job creation
Job creation can occur within social media platforms, consultancies, and third parties which entail social networking and content creation and respond to social media-specific consumer needs. Roles include business development, financial analysis, program management, etc., and job opportunities are available for employees across skillsets. A 2015 Deloitte study found that Facebook had indirectly created 4.5 million jobs and added $227 billion to the global economy in 2014. In 2018, Facebook and YouTube alone employed over 1,23,687 people.
There also exist social media-specific positions in firms which may not operate primarily through social media, but actively use it as an advertising, publicity, and consumer engagement platform. Beauty brands like Huda Beauty or Jeffree Star Cosmetics heavily rely on the same, and roles in this sphere include online editing, software development, social media management, data analysis, security specialization, copywriting, UI/UX design, digital marketing, and so on. Similarly, social media also allows growth and publicity for small brands entering the market for the first time, such as e-commerce platforms and breweries, by removing barriers to market entry, competitor information, and consumer engagement. This allows for expansion and increased employment.
Lastly, websites like LinkedIn and Facebook groups like Network Capital bridge the gap between employers and job seekers, providing opportunities for employment through professional networking. Communication between industry professionals, company alumni, and affiliates becomes easier, and so does finding a job that is suited to one’s abilities and skillset.
Advertising
Over the last decade, social media has become a critical component of advertising for brands, drastically changing the ratio of money allocation into advertising for competitive firms. A fall in barriers to exposure of advertisements provides the opportunity for reduced investment into the same. Capital can then be redirected towards other aspects such as expansion of product lines or larger profit margins. This also gives smaller and medium sized enterprises the opportunity to gain exposure through low-cost advertisement and collaboration.
One 2018 study shows that 92% of B2B marketers in North America use social media in their marketing campaigns. Another study shows that roughly 58.6% of American consumers interact with brands on social media about 1-3 times per day. A 2019 survey saw 89% marketers stating that their return on investment from influencer marketing was comparable to or better than other marketing channels, and 80% marketers finding influencer marketing effective, proving that several consumer engagement channels on social media trump other forms of brand-consumer interaction.
Digital networking also allows for a new proliferation of ‘word of mouth’ publicity, through users posting about product and service quality and experience, leaving reviews on their own pages or forums, and providing publicity either through organic community conversation or paid collaborations. In Papachristou’s words, consumption of products is followed by a network of shared recommendations. This leads to more users willing to try products and services validated by trusted recommenders. As stated by Jenkins, ‘social media do not simply buy cultural goods – instead, they buy into a cultural economy which rewards their participation’.
Urban Branding
Social media can galvanize users to partake in tourism by promoting and publicizing the aesthetic beauty of cities, urban complexes, heritage structures, etc., leading to economic growth. One such example is The City of Lompoc’s Economic Development Division, which uses social media to ‘highlight existing businesses and share their success stories, expansion plans, or shed light upon various events that are occurring.’ It is stated, ‘…the city tries to promote various industries in town for overall business retention, attraction, and recruitment.’
A 2016 study conducted in Izmir, Turkey examined the influence of social media images on urban branding in the city. Insights from the Izmir Metropolitan Municipality’s Instagram account revealed that its usage allowed for the creation of a ‘spatial connection between social media users and the city on both an emotional and informational level’.
A study conducted by the University of Cambridge and Nokia Bell Labs sought to apply Bourdieu’s hysteris effect theory, which states that social success is determined by economic and cultural capital, to urban communities. Using 1.5 million photos from Flickr taken by attendees of cultural events in London and New York from 2010 – 2015, researchers observed people’s ability to identify distinctive features of urban spaces that are not usually mapped or surveyed by censuses, finding a direct correlation between cultural presence represented by social media images and economic growth of neighborhoods.
Influencer Economy
Brands may leverage social media through influencer collaborations, providing products, services, or money to social media users with large followings and user engagement, in exchange for brand promotion. According to Statista, there has been a steady rise in brand sponsored influencer posts on image sharing platform Instagram from 2016 to 2020. 2018 saw 3.7 million sponsored posts, and the projection for 2019 is 4.95 million posts.
Biggins says the influencer economy is rooted in the blogging movement, catalyzed by the ‘platform revolution’ and rise of social media channels like Facebook, YouTube, and Instagram which allow content to spread rapidly. The democratization of this content, social media onboarding of top brands, and ability of influencers to connect to their followers on a personal level that celebrity endorsers may not be able to, are cited as the foundational reasons for the boom of this niche economy. Biggins also says, ‘ubiquitous creation tools on the influencer side and advanced personalization technology on the brand side’ are slowly allowing more and more nuanced, frictionless partnerships.
Conclusively, cost-benefit analyses of the exposure to an influencer’s audience in exchange for a product or sum of money is economically viable for participating brands, and the transactional utility works in their favor. This also allows lesser investment into creative usage of products, diversified campaigns, and better representation, which are handled by the participating influencer. Today, brands are including ‘nano-influencers’ who have lesser followers but ideal target demographics in their promotional strategies, too.
Platform Economy
The platform economy refers to the disruptive facilitation of economic and social activity by digital platforms. It is encompassed by the overarching digital economy, which entails all or nearly all economic activity relying on computers. A 2018 Deloitte study discusses a triangular relationship between three parties (the platform, the worker and the customer), and the platform is said to exist to connect people with demand to people who provide supply.
Social media is linked to platforms that control distribution, therefore regulating the proliferation of content. As stated in a Forbes article, ‘this has disrupted the traditional advertising model, and these platforms have become some of the world’s biggest companies by market capitalization […] and as a result, they have passed traditional leaders in market valuation’. The platform economy is leveraged by social media and its user base of brands, influencers, and private users. While social networks help big firms, SMEs, and homegrown brands scale globally by providing a market with lesser barriers and more access to consumers and data than accessed by traditional models, social media in itself has grown exponentially in terms of market valuation. Facebook’s market capitalization in 2019 is $538.52, and almost 70% of digital advertisement spending is estimated to be directed to Google, Facebook, and Amazon.
In conclusion
A Platform Thinking Labs article discusses the unlocking of a new market of producers with the usage of social media. The key identified changes are that the source of value creation shifts from employees in-house to a network of partners and users outside, value shifts from owning resources to managing marketplaces, and value creation itself requires a prioritization of networks of connected users through a series of ecosystem interactions.
Kenny and Zysman state in ‘Issues in Science and Technology’ that platforms disrupt existing economic organization by ‘resetting entry barriers, changing the logic of value creation and value capture, playing regulatory arbitrage, repackaging work, or repositioning power in the economic system’. Social media and social networks play a key role in making this happen, by providing both producers and consumers access to information, communication, and a democratic framework in which digital interaction takes place.
Links to referenced articles, studies, and data:
https://www.researchgate.net/publication/273990038_The_social_media_in_the_economy
http://theindependentinsight.com/2019/05/31/economyth-by-david-orrell/
https://socialnewsdaily.com/84768/how-does-social-media-influence-the-economy/
https://www.adweek.com/digital/the-digital-gold-rush-how-social-media-fuels-the-economy/
https://granicus.com/blog/using-social-media-promote-economic-growth/
https://www.progrss.com/culture/20181213/social-media-images-economic-growth/
https://www.academia.edu/30353705/HOW_DOES_SOCIAL_MEDIA_AFFECT_THE_ECONOMY
https://www.statista.com/statistics/625212/social-media-brand-engagement-rate-usa/
https://medium.com/@matthewbiggins/welcome-to-the-influencer-economy-5a69be520a10
https://www.npr.org/2019/06/10/731385508/the-money-and-trade-offs-involved-in-the-influencer-economy
https://www.macrotrends.net/stocks/charts/FB/facebook/market-cap
https://issues.org/the-rise-of-the-platform-economy/
http://platformthinkinglabs.com/social-media-sharing-economy-platforms/
Sukhnidh Kaur 