Social sharing sites are freaking red hot right now. Over the past month, we’ve watched major tech companies shell out eye-popping stacks of cash to acquire hyperactive social apps…

LinkedIn bought SlideShare for $119M, Zynga paid $200M for DrawSomething, and of course Facebook bought Instagram for a cool $1B.

So what exactly is going on here? What’s making these massive publicly traded companies so hungry for social apps, most with largely unproven revenue models?

Here’s the thing: Because these companies are all massive and publicly traded (or soon to be) — and the money changing hands is so astronomically high — these acquisitions appear to be incredibly complicated and abstract.

But they’re really not…

And even though your business is most likely a tiny fraction of Facebook’s, you can use exactly the same strategy to grow your business.

Buying Users

What does Facebook’s $1B purchase of Instagram tell us?

Two things: First, it tells us that Facebook believes adding Instagram’s 25M highly active users will boost it’s IPO price by more than $1B. Second, the acquisition shows that Facebook has a high enough average customer value to justify the huge ticket price…

Facebook, LinkedIn, and Zynga have proven business models. They’ve studied the analytics. They’ve optimized their marketing funnels. These mature social networks are hungry for new users.

Start-up apps are topping 20M users in an amazingly short span of time. Instagram attracted 25M users in 14 months… truly incredible!

The problem is that these apps are built to attract boatloads of users, not to make money. Once they’ve got over 10 million users, these developers are feeling some major pressure to sell.

Then there a company like LinkedIn, that has a thriving ad business and knows almost exactly what their customer are worth…

All LinkedIn needs is an injection of new users at a fair price. You could think about it as a long-term media buy…

That’s exactly what buying users is.

How You Can Buy Users

TONS of online businesses have the same problem: Just like these app developers, they get great traffic, but they don’t know how to monetize.

They’re waiting for an offer, even if they don’t know it yet…

Finding promising businesses to buy isn’t the hard part. The hard part is internal. As a marketer, you need to analyze your business model thoroughly, like an SEC auditor. You need to know your average customer value backward and forward.

Once you know that, you can simply negotiate for users/traffic/subscribers/etc.

It’s the exact same strategy that the big boys use, just knock off a bunch of zeros off those dollar figures.

Has you site recently dropped like a rock, right off the front page of Google? If so, a big, scary, rank-wrecking bird from Antarctica may be to blame.

Yes, I’m talking about Google’s latest site-slapping update, codename: Penguin. So what did you do wrong?

Ironically, many of the things you’ve done to boost your page rank on Google may have just caused your site to lose authority. The penguin is a funny bird…

It was no secret that Google wasn’t happy about a broad range of the keyword and link-building schemes going on. In fact, Google has been slapping digital marketers for a broad range of offenses since the early days. Trust me… I know all about it.

This time, however, Google gave us fair warning. Matt Cutts pretty much declared war on “over-optimization” at SXSW…

And what they’re doing is actually driven by the desire to improve the quality of search results. So it’s actually a good thing for Google users overall.

HEY, I’m trying to look at the bright side…

What Penguin HATES: “Over-optimization”

As you can imagine, Google doesn’t like it when webmasters try to trick it’s search engine with “black hat” SEO schemes. Supposedly, the folks at Google are trying to reward “white hat” SEO efforts, but we’ll get to that in a moment.

First, we should take a quick look at what Google is slapping sites for, so hopefully some of us can get out of the path of destruction:

1. Keyword loading, aka “webspam”
2. Misleading or irrelevant outbound links
3. hidden or cloaked text and/or links

Google calls this “over-optimization,” but what they really mean is “exploiting sneaky SEO loophole tactics.” For many of us who may have dabbled in this gray area in the past, Google is planning to make us pay.

On the flipside, Google’s Matt Cutts tweeted that Google is responding to complaints from sites that believe they’ve been unfairly affected.

We’ll see how that goes…

Takeaway

If you’re concerned about your site — and if you’ve hired anyone to do any “SEO work” on your site in the past, you probably should be — here’s a great article about how to check your site for over-optimization.

Guidelines for the future are simple: Engage in white hat optimization only. That means you should write helpful, meaningful content that’s relevant to the topic of your site… with helpful, relevant links.

Mainly, Penguin’s about what you should NOT do.

To all of you SEO masters on Fiverr, whose tactics have been ravaged by Penguin: Hang in there…

As the technology sector continues to pump out impressive growth quarter after quarter, there’s a ton of persistent chatter about the dark side…

It’s mostly about an epic, big budget sequel called The Return of the Tech Bubble. With so many IPOs launching in the past year, most of them tech companies, it’s pretty easy to see why some are worried.

If you’re an investor, it’s your job to worry about overvalued stocks. I mean, this wouldn’t be the first time we’ve seen tech stocks go mountain climbing based on massive, unbridled optimism, only to go splat.

But this time it’s different…

You may recognize these as the famous last words that have sent many investors and business owners to the poor house, but that doesn’t mean they’re not true.

The tech industry is light years more mature than it was in 1999, folks. One of the biggest reasons for that is the crash of 2000…

Investors are much less willing to drink the koolaid than they were during “Tech Bubble Part 1.” Case in point, Groupon’s underwhelming stock performance. Since it’s IPO, Groupon has been getting hammered for being immature and overly optimistic. CEO Andrew Mason recently said his company needs to “grow up,” he even personally apologized for drinking too much beer.

Another reason things are different in 2012 is that the tech giants now have proven business models, with massive earnings. Consider the very healthy, not very bubble-like, P/E ratios of a few of the major players.

In a recent blog post, Chris Dixon highlighted the surprisingly not sky high numbers: “Apple (14 P/E), Google (18 P/E), eBay (16 P/E), Yahoo (17 P/E).”

Why It Looks Bubbly

I’m not saying that there isn’t a little bubble psychology at work out there, especially with the IPOs. People get carried away with the excitement of an IPO like Facebook’s and think they’re going to flip the stock for major profits in only a few months. That’s just speculation…

I hate to break it to you, but there will always be speculators going bust in any economy.

The other reason some people are seeing champagne in tech stocks are the recent big splash acquisitions of Instagram and Draw Something. You can argue whether or not Zynga made a mistake by purchasing Draw Something, but it definitely didn’t cause Zynga’s stock to skyrocket on the NASDAQ — even though the purchase doubled Zynga’s active users.

Likewise, Facebook’s $1B purchase of Instagram was widely viewed with suspicion, not glee. For the markets, that’s healthy.

Actually I think both of these controversial acquisitions were probably very smart moves — and moves that even smaller entrepreneurs can duplicate. To learn more about WHY, you’ll have to check out the Limitless Growth column in May’s DM Pro Newsletter.

Only a few years ago, marketers had to build their online business from the ground up. Being a smarter marketer literally meant knowing the nuts and bolts of web design, marketing funnels, and user experience…

But that’s no longer the case. Sure, those skills may be very helpful, but the ground-up model is NOT the shortest or simplest route to maximizing your ROI. So what is the best way?

You guessed it: Learn how to piggyback on someone else’s model effectively — and with as little time, expenses, and effort possible.

In marketing, we like to call this “leveraging.” As in, learn how to leverage iTunes or Amazon to sell your ebooks. In biology, you might call it a symbiotic relationship… or maybe parasitic one!

Whatever your point of view on it, it’s now officially become the fastest way to build a billion dollar company. Don’t believe me? Aside from the thousands of marketers making their ENTIRE living on Amazon and iTunes…

Countless social media platforms are not learning to leverage Facebook to launch COMPETING networks! How else do you think Instagram got the word out about it’s awesome photo app? It’s integration with Facebook helped it reach critical mass so quickly that FB paid $1B for it!

Pinterest is using an almost identical tactic… and it’s clearly working. Now, add the #1 most popular free iPhone app, Viddy, to that list.

This app, claiming to be the “Instagram for videos,” makes editing, scoring, and sharing 15-second videos a total cinch.

And just like Instagram and Pinterest, it’s got auto-posting Facebook integration. So all its over 8 million users can share their Viddy posts on their Timeline automatically, turning user engagement into mini social media advertisements for Viddy.

It’s simple and it’s genius.

We should all be searching for ways to leverage these types of thing in our marketing. I know we’re not all trying to sell social networking apps, but we can all learn an important lesson from the success of Pinterest, Instagram, and Viddy… That lesson is the “Piggyback Launch Model.”

In today’s market, being a smarter marketer isn’t always about having the grand idea. Far more fortunes are being made by people who find a way to connect the dots… taking a powerful tool like Facebook and using it to fill their marketing funnels.

In all the theorizing I’ve read about social media’s big move toward artsy photography, I haven’t found one article, or even one blogger who’s really pulled back the curtain… So I’m just going to come out and say it.

It’s ALL about product placement.

The “visual revolution” as it’s being called, is a user driven revolution that makes the internet a much more friendly environment for USERS — not necessarily for marketers. So, what does that mean?

Like I’ve said before, the days of cramming and spamming are over. Push advertising is not only losing its effectiveness, it’s being erased.

Priority inboxes, ad-blockers, banner blindness, and most importantly social networks are killing it.

Facebook, Google, and even Pinterest are now more or less in control of what kinds of marketing messages get seen. In other words, Digital Marketers need to learn how to be successful in this new framework — e.g. become experts at product placement.

It’s the easiest and most effective way to succeed in the new visual environment. For example, Pinterest is now generating substantially more revenue-per-click than Twitter or Facebook.

But wait? Pinterest doesn’t display ads… how’s that even possible?

Well, that depends on how you define display ads… Pinterest, when you think about it, is one HUGE product placement ad.

So when you think about it in those terms, we’re talking about a social network built around sharing ads, or at least potential ads. And not just a fledgling network either, this is the 3rd most popular network with over 104M users.

Until Pinterest, no one was sure how to make the whole social-shopping concept work. Now we know: Product Placement.

While there’s always been some debate about how well this strategic form of advertising works in movies and TV, these mediums lack the key ingredient — interactivity. Online, product placement CAN and DOES result in action, in the form of click-throughs, and not just curiosity clicks…

Pinterest is producing 27% more revenue-per-click than Facebook, and trouncing Twitter by 400%.

Facebook, Google, Twitter, Amazon… all the big players knew this was coming. That’s why Google+ and Facebook Timeline were created. It’s also why Facebook just bought Instagram for $1B.

Takeaway

Disruptive advertising is facing increasing levels of interference and push-back from ISPs and consumer oriented brands. At the same time, users are getting more and more efficient at blocking and/or resisting the disruptive outbound model of marketing.

Look, I get annoyed with spam, pop-ups, and light-boxes just like anybody else. The good news is that we have something else that’s working…

Inbound marketing with blogs, social media, artsy photography, and product placement to entice those clicks!

“Build to sell” is one of those high-level business concepts that TONS of entrepreneurs like to talk about… but that few actually have the discipline to follow through on.

In a typical build-to-sell scenario, a company needs to prove that its model works, remain profitable for at least 2 consecutive quarters, and show the potential for long-term sustainability…

HOWEVER, that’s not the only way entrepreneurs can build to sell.

The other way is to innovate and grow at such a rapid pace, that you actually become a threat to your much larger, more established rivals. Especially at a time when they’re willing do nearly anything to look good. Like when they’re about to launch a historic IPO, for instance.

If you can’t beat ‘em, buy ‘em.

That appears to be the driving force behind Facebook’s bid to acquire Instagram for $1B.

I guess that answers the question that my team at Digital Marketer posed last week, “How Would YOU Monetize Instagram?” As usual, the simplest answer was once again the best: SELL IT.

That takes some of the guesswork out of it, now doesn’t it?

Frankly, I’m a little surprised that Instagram was willing to sell. It seemed like they were following the Facebook model, living off of VC money and building out until they could launch an IPO… or even sell out for some MASSIVE sum like, say, ONE BILLION DOLLARS!

In Instagram’s case, only 2 years after launch, I guess $1B was an offer they couldn’t refuse… Honestly, it’s hard to imagine getting a better ROI, even with 2 more years of building the model.

Why Facebook and Instagram May Be a Good Fit

Not only has Instagram benefited from it’s longtime integration into FB, Zuckerberg’s advertising model may be the only one that could monetize Instagram without ruining the experience for users.

Facebook’s extremely targeted and unobtrusive ads are a natural fit with Instagram. It’s hard to imagine a less annoying revenue model than seamless display ads, maybe even beautiful photography, from brands that are relevant to your interests.

It’s clear that Instagram is incredibly fun, useful, and most importantly — addictive. As you can see from the graphic below, the explosive success of this photo-app isn’t limited to North America, or even Europe. That definitely creates a lot of value…

The real question is: Is a billion dollars too much or too little?

Groupon dropped a nasty little surprise on investors before it went home for the weekend on Friday. The company had to revise its numbers down $14.3M in the fourth quarter. And now it’s under investigation by the SEC. Why?

The online coupon company failed to set enough money aside for refunds…

It seems pretty obvious that some of Groupon’s customers might be less than satisfied if you read the Digital Marketer blog. BUT the people running the company didn’t see it coming…

Groupon is guilty of one of the most sophomoric mistakes a growing company can make. They bought into the idea that their business model is magical.

It doesn’t matter if you’re products are cheap or expensive, physical or digital, incredible or under-performing; there WILL be refunds.

So don’t get offended when it happens. And don’t be in DENIAL.

Investors hate it when a company revises results in the wrong direction, especially in an emerging industry and even more so in the first quarter after that company’s IPO.

Look, overly optimistic prejections are an easy mistake to make — especially for wildly popular start-ups selling digital products. It’s easy for entrepreneurs to fall into the trap and believe that, because their model is new, or digital, that the ordinary rules of business don’t apply to their business model.

But there is a way to prevent this kind of thing from happening.

Hire People Smarter Than YOU

Most entrepreneurs fail to surround themselves with people smarter than themselves.

In Groupon’s case, it looks like the company is filled with kool-aid drinkers, including the accounting department.

Traditionally, you need the accounting department to be bursting at the seams with skeptics — leave the optimism for the entrepreneurs.

That’s just as important for small companies as it is with larger ones. For each dreamer, there must be a realist — if for no other purpose than to bounce ideas off of.

When Groupon was filing it IPO with the SEC, the company had to cut its reported revenue in HALF to satisfy government auditors.

It was pretty obvious that Groupon’s accounting department had a kool-aid problem back then…

However, they missed the opportunity to fix the problem.

Infinite Ways To Be Smart

When I say “smarter than YOU,” I don’t mean someone with a better SAT score. I mean someone who excels in something that you suck at.

Someone who will speak up and point out flaws when they see them, and not watch on passively.

If accounting isn’t you bag (and it rarely is with entrepreneurs), you desperately need to find an accountant that’s smarter than you. Preferably a LOT smarter than you.

If you don’t, then you may be forced to revise you earning down in your first quarter as a publicly traded company…

Smarts, don’t it?

In business, it’s all about the bottom line. In politics, it’s the economy, stupid. Right?

Sure, I’m oversimplifying a few things here… but that doesn’t mean the statements aren’t true.

What’s more, the bottom line and the stupid economy the top two reasons that 2012 is the year of inbound marketing.

Let me explain.

A new infographic from G+ confirms what we all suspected. The average cost of acquiring a lead through inbound marketing is 61% cheaper than getting one through outbound marketing. That means that businesses that are not engaged in inbound marketing are missing out on their cheapest lead source.

Not only are they paying too much for their leads, they’re leaving money on the table…

Because research has also shown that nearly ALL inbound leads have a higher chance of CONVERTING — i.e. becoming a customer (spending MONEY).

So, whether your looking to save money in this slow-growth economy, or boost the bottom line, inbound marketing is the answer.

I could break down all of the other reasons that inbound marketing is outpacing outbound, BUT I really don’t need to. You see, for most companies small and large, it’s all about the bottom line… or the economy. That’s far more persuasive than metrics about “reach” or “engagement.”

For years, we’ve known that inbound marketing channels like blogs and social media must sorta kinda work somehow… I mean, it only makes sense that “Likes” on Facebook MUST translate into sales at some point.

While most devout social media practitioners have insisted that engagement was CRUCIAL in a “macro” sense, they also ridiculed the attempt to measure the ROI of social media.

Here’s the thing, when something gets valuable enough, people with really big brains start to pay attention to it. Enter Google Analytics and the Social Data Hub.

It may be difficult to measure the ROI of inbound marketing… but it’s far from impossible. That’s why — and this is the biggest endorsement for inbound marketing I’ve heard yet — a whopping 47% of companies plan to expand their inbound marketing budget in 2012.

The second biggest endorsement is Google’s new Social Data Hub. The people on Google’s research campus are interested in social media marketing BECAUSE they know it’s worth a TON of money — not just for marketers and GooglePlus, but also for the entire social media economy.

Google doesn’t jack around with small potatoes; Google+ and the Social Data Hub are proof that it expects inbound to continue growing for the next several years.

I was a little skeptical when I heard that Pinterest was going to unveil an entirely new look during SXSW. People do a lot of stupid crap just to get a little SXSW juice.

It’s not that Pinterest’s design left no room for improvement, but come on… if it ain’t broke, don’t fix it. I’m not a fan of messing with success, especially when you’ve got something that’s absolutely THRIVING…

BUT, hey, I can’t be right ALL the time… and in this case I’d be happy to be wrong.

That’s because I actually like using Pinterest and I think it’s the best social shopping platform yet.

Why Pinterest is Working

Like I wrote about earlier this month, we’re all “image-clickers” when we go online. For some weird reason, people just like to click on pretty pictures, even if they’re not clearly linked to anything, and ESPECIALLY on mobile devices.

Pinterest happens to be one of the platforms that best caters to this obsession. Or, as our own Social Media guru, Saman Kahn, puts it, “Pinterest is addictive, even if you don’t have an account. You can just click through other people’s profiles for hours.”

The Redesign

The new design is cleaner and minimalist– two things that almost always positive when it comes to web design. Personally, I like it.

The problem is that Pinterest’s visual layout IS its innovation, its USP. So, messing around with it is risky as heck.

Why take risks when there’s no real reward to capture? A little SXSW buzz isn’t worth potentially alienating your users, especially when you’re already growing exponentially…

Once again, don’t mess with what’s working like crazy!

The good news is that I don’t think Pinterest will see much backlash as a result of the changes.

While a LOT of Pinterest users were attached to the retro, non-Facebook feel of the old design… all of the important pieces are still there to keep people clicking.

Pinterest probably planned the SXSW unveiling 6 months ago, before the platform’s growth really started heading for that stratosphere. Still, they should have been more flexible and decided to put the brakes on any major overhauls once Pinterest became the hottest social platform of 2012.

Like we saw last summer with Netflix, major unnecessary changes can backfire big time. The big takeaway is don’t take on major risks without the potential for major rewards.

The vast majority of all traffic is organic, and that’s not likely to change anytime soon…

When it comes to referral traffic, however, that’s where you look for the patterns and trends that are changing the landscape. We’re seeing one right now — just look at the graphic below.

A few weeks ago, I wrote about the “device-content link,” now we’re getting confirmation that this “link” is really shaking things up… and not in a way that the “Big Boys” are going to like (they pretty much don’t like any change that doesn’t help them consolidate their hold on the marketplace).

Just when they’d all got used to the world of Twitter and Facebook, everything starts changing…

Visual platforms are driving a bigger and BIGGER share of referral traffic. In February, Pinterest drove more referral traffic than Twitter for the first time. Not only that, but Facebook lost .54% of its share of referral traffic. WHY?

Part of it is the “device-content link.” Part of it is the shift to a more design-forward, visual web. Yet another part is the natural ebb and flow of business cycles (e.g. Facebook’s IPO) and human behavior.

When it comes to marketing, cheap and easy referral traffic is GOLDEN.

The problem is that explode or disappear overnight. It’s almost like the harder you try to drive traffic, the less ROI.

That’s why I always tell my team to OPTIMIZE EVERYTHING, before driving in more paid traffic…

The other BIG concept I recommend is exploiting all existing channels. Clearly, that now includes Pinterest.

According to this chart, Pinterest is driving more traffic than Google’s entire referral network (which includes AdWords and Google+).  Pretty impressive, especially when you consider that Pinterest is still invite only.

Perhaps even more surprising is who’s beating Pinterest…

Although “StumbleUpon for Marketers” isn’t a very sexy headline — but it ought to be for anyone who’s following the numbers. StumbleUpon is second only to Facebook when it comes to driving referral traffic. In other words, it’s probably worth reading StumbleUpon’s 5 Keys to Brand Discovery.

The main thing is that visual platforms like Pinterest and StumbleUpon are growing, while text-based platforms like Twitter (it doesn’t get much more text-based than Twitter, does it?) are losing eyes.

Don’t get me wrong, Twitter still has tons of active users and it’s important to marketing strategy… but driving traffic just isn’t what Twitter or Facebook are all about.