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.

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?

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.

Whether we realize it or not, the one, single trend that ALL marketers are obsessing over is how quickly and effectively we can “change” human behavior.

No matter how hard Facebook tries, no matter how much of a genius Zuckerberg is, they can’t magically retrain users see Facebook as a shopping channel. That’s why they’re having major growing pains with f-commerce… There’s no refresh button inside of their users’ brains.

Google is facing a similar problem. It can get users to sign up for Google+, but it can’t train them to actually use it.

Imagine if Amazon launched a Twitter-esque micro blogging network tomorrow… would you actually use it? Probably not, right?

Established media channels their own organic identities. Even with Google or Facebook’s resources, they can’t actually change these identities overnight. It happens gradually… sometimes way too gradually.

For example, email has long been the marketing channel through which we receive shopping offers and purchasing information. Some gurus predicted that email would disappear as social media continued to grow… BUT it hasn’t happened. NOT AT ALL.

Instead, email has only become more important, as both a marketing vehicle and a go-between that alerts you about social media happenings. According to the awesome infographic below (hat tip eConsultancy), 73.4% of US mobile users received alert emails from Facebook in 2011… that’s a TON.

In fact, as a marketer, one of your major social media goals is to collect opt-ins. It’s kinda of funny, really.

Even though social media is incredibly addictive, and we’ve become extremely comfortable on these platforms — they still depend heavily on email for their monetization strategies. Just look at the graphic below and you can see just how critical email is to social media strategy for the foreseeable future…

Channels are slow to change because people like comfort and familiarity. Look, I’m right there with you. I’d rather get a receipt emailed to me than sent via Twitter or Facebook. Email is just comfortable.

That’s why its so interesting to watch a new social network like Pinterest thrive and drive revenues — right out of the gate.

The fact that Pinterest started with a blank slate has given them a HUGE advantage. As a social platform, it’s building engagement and driving shopping behaviors in a way that Facebook or Twitter could only dream of.

It’s a good thing to remember, not just in how you use online marketing channels, but for your own business. You train your customers/users on what they can expect from you from day one… changing it can be a slow and sometimes painful process.

After playing around with a few of the latest and greatest social media tools, I’ve finally found one that I think has all the right pieces in place…

It’s a very good-looking, immediately engaging platform that’s really got this whole social shopping thing figured out, I think…

As far as social platforms go, this one just seems designed to convert browsers into buyers — and it’s much more fun to browse on than platforms like Google+ or Facebook.

Of course, I’m talking about Pinterest, check out my page at: http://pinterest.com/ryandeiss/

As the “device-content link” I wrote about last week grows stronger, we’re slowly moving away from text-based navigation and toward something more intuitive. The better the design, the less text we need — and the better we can navigate these designs on touch screens.

We probably have Steve Jobs to thank for that.

Here’s what Pinterest does EXTREMELY well: It’s almost completely image-driven. Since Pinterest is loaded with images to click, it immediately gives visitors a sense of purpose. That purpose, of course, is to click on each and every image that might interest us.

When you land on Pinterest, you don’t find yourself wondering what the heck you’re supposed to do (the way you might have felt the first time you saw Twitter). Even if you don’t want to share anything on Pinterest, you can just click around for awhile. It’s brilliantly simple.

Face it, we’re a nation of image clickers… It’s nothing to be ashamed of. It is, however, something to use to your advantage in marketing.

Time and time again, I’ve found that including an image in my emails, landing pages, and social media posts doubles clicks. In fact, using a service called ClickTale.com a while back, I found that users often click on images that aren’t in any obvious way linked to anything…

That’s why I try to make sure all my marketing images are linked to something… and, of course, I’m moving my team onto Pinterest.

Valentine’s Day is basically the official holiday of direct response marketing (DRM). Think about it: You send a card and hope for a response.

It’s also one of the only days on the calendar where print still performs relatively well — if you’re lucky.

For the other 364 days in the year, print marketing campaigns are incredibly untargeted… it’s a shotgun splatter approach. It’s a spam-plosion with no filter.

At a time when it’s literally never been easier to target prospects with laser accuracy — direct mail just seems ridiculous.

In fact, there are businesses springing up with the sole purpose of crushing direct mail marketing.

1. That’s where a new company called PaperKarma comes in. Now, this isn’t a long product endorsement for this app or anything… I just thought it was a powerful example.

With PaperKarma (hat tip to TechCrunch for finding this) you simply take a picture of your annoying junk mail, tap “unsubscribe,” and PaperKarma’s will contact the distributor and get your name off the list… IT’S THAT SIMPLE!

It’s something you’d never invest the time to do yourself, but now it’s a process that takes only a few seconds…

This for-profit app is literally designed with the specific purpose of KILLING print Direct Response Marketing — and it’s not the only one out there either.

2. Other services are attacking print DRM with a less frontal assault. Daily Deals services have taken a piece of DRM universe as well.

If you’ve ever subscribed to a service like Groupon or GoogleOffers, you know that these services spam you in much the same way a print DRM campaign would. The main difference is the extreme discounts the require from businesses they partner with.

3. A start-up called LocalResponse has come up with an even BETTER model to replace the old marketing circular. These guys use a variety of social platforms to bribe users to check-in at a particular store (on Facebook or Foursquare) — and receive a digital coupon via Twitter.

This way, the store gets value — the user basically has to recommend the store to their network — and the user gets a coupon that lives in their smartphone, that they take everywhere, NOT their mailbox.

I’m amazed every single time I sign up for a new rewards program, only to find that the DesignDollars or RewardBux I’m earning are sent out via mail… Maybe these companies are literally hoping that these rewards coupons will get mixed in and thrown out with the other junk mail.

It’s impossible not to draw parallels between Facebook and the other network that could have been Facebook…

That network is, of course, MySpace, or my_____, or whatever catchy spelling that schizophrenic company is going by these days.

According to a study published last week, Facebook is on its way to a billion users worldwide in August. We’ll say that again, one BILLION!

MySpace, on the other hand, is on its way to zero… The once mighty network has watched its users leave gradually, then suddenly, then in droves.

Currently, MySpace is hanging out at around 20M unique visitors per month. While that’s nothing to scoff at — for a startup — it’s fewer unique visitors than a site like Reddit gets, a tenth of the visitors that Twitter gets. Here’s the real kicker, that’s half as much traffic as MySpace got a year ago!

Only four months after its official launch, Google+ has already surpassed MySpace.

So what did MySpace do wrong, so horribly offensive, that it caused their users to pack up and leave? And how did Facebook manage to steal tens of millions of recovering MySpace addicts?

Obviously, design was a big part — Facebook’s was much better. But it wasn’t the visual design that really made the difference… it was how Facebook designed its information.

The key is RELEVANCE.

We all know why people log in to their social media accounts: To see messages, photos, and updates from the PEOPLE in their network.

MySpace didn’t create or impose any of the firewalls necessary to keep annoying promoters from spamming your account. As a result, it became a lot harder to find relevant content, posted by actual friends.

Remember how, by 2007, your MySpace account was a big ugly mess of irrelevant, automated spam?

In contrast, Facebook was slow to allow its network up to non-college students, and even slower to open it to brands. Zuckerberg was wary of marketers, because he understood that relevance and genuine human interaction was the engine that drives social media.

It’s a lesson that has impacted all social networks since Facebook. And it’s a lesson that all marketers should drill into their brains.

Users have become much more sophisticated. They can tell the difference between real content and automated gibberish.

That’s why it’s so important to not rely too heavily on automated content distribution. By all means, have a human write your Facebook, Twitter, and Google+ posts.

The second that we suspect that a piece of software is generating messages, and not an actual person, it cheapens the user experience and destroys the perceived value.