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How to make money by investing in the Social Media Space

How to make money by investing in the Social Media Space

With the advent of Facebook and Twitter, social media has become a permanent aspect for most of us in our daily lives. Recently, Facebook surpassed the 500 million member mark, with the company now valued at $50 billion and earning $1 billion annually in revenue. Though smaller, Twitter, with 200 million users, is valued at $1 billion and with revenue of $150 million. Given these figures, it is of little surprise that so many angel investors are seeking to find the next great social media start-up. But before you look at privately investing in this ballooning sector, there are things you should understand about their business model and differentiating features. The distinguishing feature of social media that differentiates it from the dot.com Internet boom of the late 1990s is the way people interact and connect with each other online. Whereas people previously made money off the Internet through the ability to search for people, companies, and sell things, social media or what some call “Web 2.0,” allows Internet users to create and publish anything they want to share about themselves. While this in itself provides zero revenue, the advertising model that it is premised on has become a lucrative business. Google for example, made $6.77 billion in the first quarter of 2010, which is made almost exclusively off its search engine capabilities that power its advertising model (because in the end, Google is just a very large advertising company). More recently however, smartphones, have served as a platform for the selling of “apps.” Apps are third-party software programs that perform a variety of different functions (ie. suggest restaurants, turn...