Never build on leased land. Lessons from the Twitter Debacle

Nov 14, 2022 

John J. Schaub

There is an adage in Real Estate that you should never build on leased land. What this means is if you do not own the property and cannot insure that you will maintain ownership long term you should not invest any significant effort in developing that property. At an intuitive level this makes sense and early in the development of Social Media a number of marketers made this point desperately trying to get major brands to focus on their websites and other venues that they own and control as opposed to Facebook, Twitter, Youtube and other walled garden Social Media ecosystems. The recommended practice was to use Social Media to drive traffic to your own website but never to put the bulk of your focus on the Social Media site itself. Obviously the Social Media websites did not like this approach because it pulled people away from their sites and they went to significant efforts to push brands to build their audiences inside the walled garden. The end result was the Social Media companies won and with very few exceptions most organisations built their audience directly in the Social Media ecosystem.   

Now a decade and a half later with Facebook all but dead for anyone under middle age and Twitter in the midst of what will one day be an epic MBA case study my humble prediction is a lot of the early marketing strategists who have been effectively ignored for a decade will be doing a lot of I told you so in the next few months. To be fair to my memory the marketers that were pointing out the folly of building on sites controlled by others were only thinking in terms of long term brand value and I do not recall anyone predicting the sheer magnitude of the risks we have seen manifest in the last week but regardless they were absolutely correct.

Imagine for a second what the conversation must have been like at Eli Lilly recently. Eli Lilly is a pharmaceutical company which has over the last 13 years built a Twitter following of 130k+. I have no insight into how much Eli Lilly has directly spent on building that audience but reports have mentioned millions in ad spend per quarter and of course you need to account for an internal marketing team of at least a few people. Personally I cannot imagine why anyone would follow a pharmaceutical company on Twitter so I am sure some real effort went into building that presence out and an estimate in the tens of millions is easy to justify. And rather than be rewarded for more than a decade of brand building and god knows how much in ad spend the marketing team at Eli got to try to explain to the executives why their project had shaved an estimated $15B off their market cap. This is the sort of conversation no one ever wants to have and you really do feel sorry for them. The ramifications from Eli Lilly were immediate with the company reportedly ceasing all ad spend on Twitter.

The decision by Eli is likely only the tip of the iceberg and you can be assured that every major brand is giving serious thought to how they want to do online marketing in the future. The real problem for the Social Media companies is that the Eli Lilly situation is happening in conjunction with a recession that will have all companies reassessing spending and a growing scepticism about Social Media marketing in general. Simply put when money is tight no executive wants to be seen to be spending millions on something that might actually be counterproductive. Beyond that a lot of people who actually dive into the numbers for a living (like me) have been pointing out for a while that the ROI on Social Media ad spend is not nearly as good as the Social Media companies would have you believe.

So where will this net out? I’m far from sure but my in the moment guess is that the current Social Media heavyweights Twitter and Facebook have entered an inexorable decline and will never reobtain the relevance they had just a few years ago. I am quite certain something will replace them but in order to get buy-in from brands which is necessary to achieve profitability there will need to be both safeguards against impersonation and some mechanism for the brands to insure ownership over the audience they build. Beyond this there is going to be a demand for transpacency on ad spend results that just doesn't exist with any of the current players. I just cannot see any brand making a serious investment in the ‘next big thing’ in Social Media when their very significant investments in Twitter and Facebook have netted so little. The immediate beneficiaries seem to be Mastodon and Tumbler but it remains to be seen if they will be able to capitalise.