By Rohit Thapliyal
NEW YORK (MarketWatch) — Say your name is Mark Zuckerberg. Although this week might be a little busy with your $100 billion IPO, consider a typical week when you have some spare time and, for example, are considering a new Facebook tool.
Say you want to compete with LinkedIn Corp.’s ultra-popular professional network. You want Facebook to provide its own environment for business opportunities, resumes, and job openings. You decide to call your new top-secret project by the clever acronym “CV.” Read Minyanville’s “Nobody Likes Facebook, But a Rewind to 2004 Reveals That Nobody Liked Google Either.”
You build a beta version of CV and roll it out to a limited portion of Facebook users. They test CV in beta while your analytics team collects data about their usage.
You compile the data, present the findings to your board, and they recommend that you move forward with rolling out CV to the entire Facebook community. Your analytics team estimates a 79% likelihood that CV will be adopted by enough people to reach a “critical mass” and become a permanent, accepted part of Facebook.
You like the sound of 79%, but more would sound even better. You suggest a blitz on social media. “Get the world talking about CV. Go fast, heavy, and with as much volume as possible: 2,000 blog posts, a couple hundred YouTube /zigman2/quotes/205453964/composite GOOG -2.79% videos, and as many tweets as possible — thousands.”
You discuss doing an internal launch, like the Timeline initiative, or paying outside firms. Social media marketing companies include Ad.ly (which specialized in actors, musicians, athletes), Blog Her, Izea /zigman2/quotes/200407767/composite IZEA +3.85% and Federated Media. All of them offer access to thousands of people who will post to blogs, Twitter, Facebook /zigman2/quotes/205064656/composite FB -2.77% , Tumblr, and YouTube in exchange for compensation. (These companies retain people by paying per-post, per-impression or per-click.)
Facebook boosts IPO range: The rich get richer?
Taking a look at Facebook's increase in its IPO price range. Also, AFSCME's Lisa Lindsley details her group's shareholder proposal to split Jamie Dimon's chairman and CEO duties at J.P. Morgan Chase. Photo: Bloomberg.
You decide on the company or combination of companies you will use and move ahead. Once the campaign is in full swing, you roll out CV to the entire Facebook community, adoption rates are higher than expected, and CV becomes a profitable LinkedIn killer.
In our hypothetical example, Facebook creates a new product -- CV -- and uses social media marketing to generate thousands of organic postings from everyday people about the product. This social media activity drives consumer awareness about CV, improves adoption, and ultimately drives the success of CV over its competitor, LinkedIn.
Now, investors reading this story might be thinking, “Great, but can I actually make money from all of this?” Indeed, most investors have probably never considered blitz advertising as a place to invest their money. Nevertheless, with the Facebook IPO coming up, astute investors are beginning to think outside the conventional box, realizing that social media ---Twitter, YouTube, WordPress, et al-- is a hot sector in the market right now.
How to invest in blitz social media
1. Exotic derivatives
If you would like to guess the future value of a blitz marketing campaign, you can use exotic derivatives to place your bet. Exotic derivatives take many forms, such as yes/no bets on the future price of Apple or bets on the future box office sales of a Hollywood film. If your prediction is early and accurate, these derivatives can pay substantial rewards. For example, suppose you notice a few sponsored tweets about the movie “Battleship” and you predict that its studio is planning a million-dollar social media blitz. You could buy “Battleship” derivatives on the Hollywood Stock Exchange, and receive a payout if “Battleship” exceeds certain performance thresholds. Although there are many ways to trade exotic derivatives, because of their complex nature, most investors should be wary. See Hollywood Stock Exchange.
2. Public companies
Another option is to invest in public companies. There are limited number of social media advertising companies that are open to public investment, including the above-mentioned Izea, as well as Millennial Media Inc. , Velti PLC , and ValueClick Inc. , among others. Most of the largest ad agencies are closed to domestic investment, including Havas HAVSF -1.81% , Huntsworth /zigman2/quotes/204390865/composite HWTFF +13.46% , Merkle, and FullSix /zigman2/quotes/202924573/delayed IT:FUL -1.07% .
With the Facebook IPO heating up the advertising sector, though, many ad agencies are performing well. Huntsworth (which specialized in managing medical communications) is up 23% year-to-date. Izea is up 148% over the same period. Of course, investors who are comfortable putting their money outside the stock market have another option available to them: secondary markets. Read “How One Billion Social Media Addicts Can Make Money While Still Wasting Time.”
3. Secondary markets
Facebook alums push Q&A site Quora
Former Facebook executives are fueling investor interest in question-and-answer site Quora. Shayndi Raice reports on digits. Photo: Quora.
Sharespost and Second Market are two of the more famous “secondary markets” that allow trading in pre-IPO shares of private companies such as Pinterest, digg, Etsy, and TheLadders. Facebook shares are some of the most actively traded private shares in history, thanks mostly to the ease of transacting on these secondary markets. The difficulties facing an individual investor wanting a piece of Facebook have been detailed. Read Minyanville’s “How to Get a Piece of Facebook.”
If you appreciate the power of high-volume postings about a topic (whether a movie, product, company, TV show, or any other tradable instrument), then these methods could be an interesting way to get involved in this new sector. As always, investors should use caution, perform due diligence, and consult a registered financial professional for personalized advice.
Rohit Thapliyal is a Minyanville contributor.