I understand your point on there being so many social bookmarks. But it’s like anything, only the top dogs survive and those dogs are facebook and myspace.

I’m sure there will be other “smaller” websites for the kids who hate the mainstream but in the meantime, internet advertising is a very cheap effective route to go if you want a targetted audience.

Tom
http://www.gotalkmoney.com

Well said Kat……these big media guys cannot see any value in anything that is not big and monopolistic. Social networking sites have the “potential” for fostering the creation of millions and millions of small niche groups of people each with their own particular personality and each wanting a way to express how they want to participate in operating our world……that’s 6 Billion niche people…..large by any count!

Hmm…I’m afraid that this article misses the point of social media and social networking. Maybe it’s not supposed to be “mass media.” It’s supposed to be niche, very targeted, focused, opt-in marketing. Using social media and social networking are tools that compliment any advertising plan. And yes, the trends change and they change often. Advertisers must change and adapt and be wherever their target audience decides to go. The beauty of social media and networking is that if advertisers are clever and intelligent, it’s possible to communicate with their target market in a “not so big” way. Who cares if it’s ever a huge investment? Social networking takes time, not money, in my opinion. Where there are eyeballs, there are advertising opportunities. Businesses have to get out of the “mass” box and get into the niche one.

Don’t scroll up, quick what company had the ad at the top right of this page?

That’s why online advertising can never be the “magic” solution. Too many have ceased to acknowledge them at all.

I agree that the issue is can the social graph be monetized and can advertising exist within the context of the social graph. here’s my take: advertising must fundamentally change its approach to social media. social media forces brands to communicate AUTHENTICALLY with users (note: not “conusmers”). its time to adjust the thinking and dislodge the equilibrium. In order for brands to exist within a social context, they must adapt for fail. this is why web strategists, word-of-mouth, and social media butterflies will become more relevant and sought after by advertising agencies who get this cultural shift.

Your assessment about whether the large social networks are worthy of the hefty valuations they’re receiving is spot on. In order to live up to those numbers, the expectations are going to be immense. They may well get there but it probably won’t be a smooth ride.

The ad revenue opportunity in social media is based on audience engagement (which is clearly there) but also relevance. This is where the general social networks fall short. For the most part they lack context in the same way a large shopping mall does when compared to a boutique store. The high value opportunity is around quality of audience, engagement and ultimately, brand affinity for marketers. So called niche communities offer this in ways that general communities don’t, but it’s important not to think of this as an either or proposition. Most people want both malls and boutiques in the lives.

With this opportunity, marketers need to think in terms of a marketing model that leverages context, relevance and participation. Three basics:

1) Targeted, relevant advertising. People accept unobtrusive messages that are relevant to their interest within the community but advertisers can’t assume that the same rules for advertising apply in a participatory environment. It’s a different environment and people are engaging in different ways. More importantly, there are tremendous opportunities to understand not only what people are topically interested in but also how they interact. The context is there and the data mining tools are available. This should all inform the message and delivery.

2) Branded programming. From a branding point of view, facilitating an activity on the social web can do as much if not more for a brand than banner ad. Check out what VIBE Magazine did with MySpace on http://www.vibeverses.com. MySpace reaps the benefits of partnering with a strong niche brand, VIBE benefits from the audience that MySpace aggregates, and advertisers wanting to reach urban teens and young adults have a platform to engage them through prizes, contests, etc. There are opportunities for both brand affinity and calls to action. [Disclaimer: VIBE is using KickApps to power the VIBE Verses contest.]

3) Commerce. People are engaged and are more inclined to buy. Think of being in a conversation about a sports team. You get all psyched about it and the team releases a special edition jersey. People engaged in that conversation are likely to make that purchase. Right place, right time, right product.

It’s not necessarily a quantity game anymore, rather, it’s quality. With quality comes a premium. That’s what will drive valuations.

Alex Blum

CEO, KickApps

Neither social networks nor search ad will be the next magical solutions, since there will be none in the future. And not because media are changing, but because both consumers and markets are getting too complex to admit one single magial solution to serve everyone and everything.

So, marketers won’t have to choose between search ads and social networks, but will we free to use both, each with a different goal

There is a pivotal problem with the valuation of social networks proffered in this article and it relates directly to the marginalized perception of exactly how advertising would work in this arena. If you envision the real ROI payout coming by way of conventional online advertising methods (and yes, although it sounds weird, “conventional” can now be used to describe digital advertising efforts also)then your vision is way too small to be effective in the online arena. Taking advantage of the platform that social networks provide requires first acknowledging that it is a distinct, unique platform and then acknowledging that this means that one cannot merely take the ad formula utilized on traditional online platforms (display banners, textlinks, emails, etc.) and apply it to the social networking platform; you must compel yourself to think differently about the way that users interact with social networks and thus differently about effective ways to communicate to users via this platform.

Cheers

I agree with Nail. Social networking is part of our life and is here to stay. Monetization (martini! anyone)of this behavior is still elusive for site owners as well the marketers. This field is in the process of consolidation. By the end of next year (if not earlier) there will only be a handful players left. It is a good thing. So marketers should hold their pocket to wait on the sideline until the dust settle. Only then, marketing can focus on interpreting this behavior and profit from it.

MS’s $15 billion dollars valuation of facebook is a smart way to scare Google and Google took the bait. Nail may not have seen this point. It is all a chess game whenever it is involve MS and Google.

And yes, search is and will continue to be the growth engine in online ad spending for next 3-5 years, until something else comes along.

The thread of the above messages seems to be that no one questions the value of search, but there seems to be a preponderance of doubt as to whether users will accept advertising on social networks. That leads to another question, which is the elephant in the room that everyone ignores [and with reason]: what if advertising, other than search, doesn’t work for the advertiser? We’re beginning to read that it doesn’t. That, for example, the websites of magazines, newspapers, etc, are great for information, but questionable in terms of a return for advertisers. People understand the need for search, but banner ads, buttons, etc?

I’d place my bet on Facebook, not on some other company emerging from the back of the pack to steal the race. I’ve been on Facebook for a while, and what I’ve seen in the last couple of months has amazed me. I’ve been contacted by so many people I used to work with and who I haven’t heard from in years. It’s not just friendly hellos — most of it is business networking. Facebook isn’t boring like LinkedIn, it’s not wacky blown-out MySpace pages. It gives us worker-bees a chance to show some spark without looking like a 13 year old. Talk to anyone in college and they’ll say that Facebook is indispensible, and now the post-college crowd is catching on. If you build a network on Facebook, it has long-lasting value. Sure you could move, but who wants to start over?

I couldn’t disagree more. First of all, TV was never the magic solution. Good marketing and advertising used multiple channels to get the message out; print, radio, outdoor, etc. Nail mentions that those using social networks are too busy to look at ads (in the abbreviated email version of this article). Duh! Who said ads? He sounds like the people back in the 90s who said the web was just a trend and it wasn’t going to be as effective at getting their message across as a billboard or a brochure.
What these old media guys don’t get is that they still think of advertising as talking TO people. Social media is about talking WITH people.
I do agree that the bubble of social networks will burst but only in the sense of big media companies buying them up. Social media will be the optimal place to market especially with a recession. Social networks are a rich source of HIGHLY niche audiences and therefore highly target-able. Instead of selling every kind of sneaker on ESPN, marketers will be able to sell teen girls soccer sneakers in the forums of the women’s soccer league’s website. But you don’t necessarily do it with a blinking banner ad. You do it by creating a contest, or talking directly to potential customers.

The real difficulty is that social networks are different than other types of sites where the activity is a primarily a passive one (reading an article such as this and viewing/potentially clicking on the ads).

This ad model breaks for social networks because there is so much intereaction between people. My analogy is sticking a big poster ad in-between two people who are talking. That would be really annoying regardless of how targeted the ad is because the ad is not shown in context to what the person is doing (who wants an ad stuck in their face during a conversation).

So, the problem is the current ad paradigm on the Internet just doesn’t work that well in a social media world. I think this is why CPMs are plummeting for social networks. They just aren’t effective.

That doesn’t mean there arne’t other ways to monetize–digital asset sales, more integrated sponsorships that don’t depend on display ads (text or graphical).

(Full disclosure: I run product marketing for Cyworld US, a social network)

There are boutique social network sites that attract a large audience interested in the subject at hand that could be a perfect fit for branded entertainment. That is where the opportunity is for advertisers on social network sites and it is non intrusive to the user.

Let’s not fall into the old trap of confusing clicks with impact. I’d rarely click on fashion or clothing or fragrance ad. It just means that like 95% of purchases, I’ll go to a store to buy it. I can’t click on my TV (yet), or my issue of Money magazine, but it doesn’t mean the ads didn’t work.
Many social networks can do a better job of targeting and differentiating themselves. But an ad isn’t as intrusive if it’s in context with the content — or if you’re in the market for that product. In that case, it might actually be welcomed.

As a 34 year vet of Direct Marketing and a nine year vet of Internet Marketing several as a reporter on Internet Marketing I agree with Nail!

How many times do I who is in the industry really click on any of the ads at my Facebook, MySpace, Zimbio, Ning, etc. pages? Less than 1% for all combined!

Interesting point of view coming from somebody who writes for CNN

Nail is an idiot. Decentralization of the social graph, the creation of the Giant Global Graph is inevitable–despite current issues that must resolved first…but this guy is thinking 1.0 style where the platform, the container is the key…he’s missing the point that its THE DATA AND DATA CAN BE PORTABLE…

You make me sound like a total pessimist! Social media is so valuable to consumers that they will keep using it; and someone will figure out how to monetize that value.

First, my comment “The current trend is unequivocal, inexorable and irreversible” was specifically about social media. Now that consumers have found the ability to express themselves and connect with each other, they’re never going back to sitting on the couch watching TV as their sole entertainment activity.

Second, the results of MySpace’s “Never Ending Friending” study http://www.myspace.com/neverendingfriending shows that under the right conditions, social network users will not only allow marketers in, but will help them spread the message.

The tightrope the social network sites must walk is convincing marketers to let go of their brand assets, so they can incorporate marketing in a way that doesn’t drive off users.

Will MySpace succeed at this? Will Facebook? I don’t know. But someone will figure out the right model. After all, when Google first appeared, people wondered how anyone could ever make money off of search. Google wasn’t the first with the pay-per-click model, but they perfected it in a way that no one else has been able to duplicate.

The marketers are ignoring one important fact: social networking is only a fad that will fade away. All other Internet “sensations” have followed the same course. People get bored with technology rather quickly and move on to other things. Oh, and almost no one pays attention to ads on the net.

Paul, I agree that the social networking bubble is indeed growing, and with a greater number of companies adding to the bubble, it is likely to pop. But I feel that the addition of targeted advertising and social ads by (currently) privately-held Facebook and MySpace will create the pin that splits each layer of social networking, and the fad bubble as a whole. The one simple reason for that is the majority of users ARE teens, and these sites were created FOR teens. Go to any campus and ask if the popularity of social networking has declined due to the annoyances of adults and appearances of ads. The answer will be a defined yes. With the planned “business models” this bubble will pop sooner then we think.

Paul, you’re showing your age… Myspace has been huge for 5-6 years, but granted is falling off quite a bit. Likewise, Facebook has been booming for going on three years now and is still on an upward trend. You are correct however in the fickle nature of the market in this area… just as Myspace and Facebook respectively revolutionized social networking… it’s only a matter of time before another company does it again.

I have always felt American advertising is a bit of an act of desperation. I don’t believe the majority of advertisers have real information about what works and what doesn’t - running ads on multiple networks gives you no information about which network provides what sales. In the Internet space, advertisers do not seem to realize that popping an ad over an article I want to read, or preceding a video I want to watch with advertising, leads not to sales, but irritation, a negative effect. If I get an HP printer when I want to read your article, buying an HP printer would be the very last thing I am going to do..

And I think you are right on with your comments about social networks - you don’t go to a social network to shop, you go there to communicate. Anything that gets in the way of this is, again, annoying. I have recently had an opportunity to see what goes on in Asia, where the networks are fast enough to watch the news and video clips on standardized GSM phones, where even the Philippines have mandated the carriers to cover 80% of the archipelago with 3G networks, and it looks to me that only Google has a real plan to bring interactive searching combined with advertising to shoppers with expensive phones, the high rollers that would use their portable devices to find and look at a pair of shoes while they’re having coffee at Starbucks, with Nokia’s GPS indicating exactly where the store is. But without the advertisers and the manufacturers understanding they can’t get to a targeted consumer without the carriers, much of TV and Internet advertising will remain Garbage In - Garbage Out. The majority of high rolling consumers in the United States leave for their homes in the suburbs, at night, and that is exactly where we have second class wireless networks. Only using cellular technology can you find out that a subscriber is in the mall, where the inescapable conclusion might then be that they’re shopping.. is conventional advertising obsolete?

Menno Aartsen
Fredericksburg, VA
http://aartsen.net