Efficiency
Efficiency as a performance variable is understood as the efforts of a company to
maximize wealth. Economists examine efficiency from two perspectives: (I) how
efficient the firm is at using its resources to maximize output; and (2) how efficient
the firm is in allocating resources to function at maximum capacity. As mentioned
previously, social media firms operate across digital platforms that have low cost
structures, and the actual "products" produced in the form of applications (which
are intangible) have a near zero marginal cost basis rather than a traditional maker
of a product that entails a "per unit" cost. Thus, there is a high degree of technical
efficiency.
In terms of allocative efficiency, because the social media industries operate in
a world where fixed and variable costs arc- much lower than other types of media
industries, the firms are in a stronger position to allocate resource easily. Once a
site or application is developed, the companies must provide updates and fixes on
a regular basis, which requires additional programming and testing. As new formats
for smart phones and tablets have been introduced, developers had to create new
versions to work across different brands.
Regarding efficiency, the social media firms operate with a great deal of efficiency which is helpful in maximizing performance. But one must understand that sites and applications can take months and years of development and refinement; this means many startups operate at a loss for some time before realizing profits. At this early examination of the social media industries, only a handful of firms (e.g., Linkedln, Facebook, Twitter) are profitable, yet the long-term outlook is for greater profitability, provided monetization efforts are realized in the coming
years.