Do social networks need advertising?

Mitch Joel pointed me to a business week article about advertising in social networks. In the same post he also links to a blogpost claiming social media sites need advertising.

In short: time spent on social networks is declining, for whatever reason – one could of course be increased advertising on these platforms. So this could be a problem for advertisers in the near future. Secondly: social networks need advertising, the same way media has always been ad supported.

But it’s not only the fact that user numbers are going down, ads on social networks are also less effective than on regular websites:

Many of the people who hang out on MySpace, Facebook, and other sites pay little to no attention to the ads because they’re more interested in kibitzing with their friends. Social networks have some of the lowest response rates on the Web, advertisers and ad placement firms say. Marketers say as few as 4 in 10,000 people who see their ads on social networking sites click on them, compared with 20 in 10,000 across the Web.

The solution to this is new targeting mechanisms, to serve users more relevant messages.

Last fall, both rolled out programs allowing marketers to pitch products to people in hundreds of categories of interest, such as fashion and sports. News Corp. President Peter Chernin said on Feb. 4 that response rates on MySpace improved as much as 300%.

Could be a solution. But at the end of the day, this whole approach still tries to use old answers to new problems. How about taking an approach that looks beyond plain advertising? How about introducing branded widgets, services, or exclusive whatevers to these platforms, so that brands can provide an added value to the interaction between users?

I am thinking of such things as the Red Bull Rosham Bull Challenge in facebook, which is a game that two users can play against each other. Or even just plain and simple things like the fact that you can sponsor digital gifts in facebook. There still is lots of potential for these kind of approaches.

Oh, and from a business model perspective: I don’t think social networks need advertising support. At least not to the extent that their business models are in danger if there is no proper ad solution in place.

Think about the German platform Xing.com. There you have a choice of paying a monthly premium for additional services – one of which is the fact that you don’t get to see any ads.

There could also be other models, like changing the business model slightly and starting e-commerce around certain product groups (i.e. certain information-based, digital products or even real products).

These problems are not really new. But what this whole discussion shows, is simply the fact that social networks have, all of a sudden, exposed the need for new marketing approaches much clearer than any of the previous developments on the web.

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The long tail characteristics of a widget economy.

Facebook, Facebook and Facebook again. Seems like you can’t get away from it. O’Reilly now published a report on the widget and application economy of Facebook and the long tail characteristics of which.

The report covers the following:

  • Sizes up the Facebook opportunity–who’s making money, and how?
  • Lays out best practices of marketing with Facebook Applications, aka Social Media Optimization (SMO)
  • Identifies the top 200 Facebook applications and plots their growth rates
  • Goes beyond Facebook, and scopes out the emerging widget economy

Not sure if I want to dish out the $150. But if so, it should be worth at least for finding out about what they say for the last point: scoping out the emerging widget economy. This is definitely a trend worth watching!

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Facebook widgets: mini-bubbles in a bubble?

Sometimes it feels like there never is a single day without news about Facebook. Today, the New York Times published an article about „investing in a theory“ – the fact that there is a hype about participating on Facebook, programming widgets, earning revenues in any way possible. But nobody really found out how just yet:

Now it appears that such exuberance has infused the expanding Facebook universe, even though no one has yet proved it is possible to build a profitable business with sustainable revenues on the site. Some developers report earning tens of thousands of dollars in advertising with the applications they have created. Yet their applications are mostly running ads promoting other Facebook applications — a situation that recalls the earliest Gold Rush miners, who earned a living selling shovels to other miners. And developers must cover the cost of hosting the applications on their own Web servers.

Nevertheless, people are as optimistic about this as they were about the whole industry some 7 years ago.

This summer, Lee Lorenzen, a venture capitalist in Monterey, Calif., who describes himself as “the first Facebook-only V.C.,” started a $25 million Facebook investment fund and introduced a Web tool, at Adanomics.com, that assigns a monetary value to Facebook applications.

And here is a quick facts summary taken from adanomics:

  • There are 348,289,583 installs across 5,160 apps on Facebook.
  • These applications were used 25,756,704 times in the last 24 hours and have a combined valuation of $286,885,848.
  • Facebook has approximately 40 million Unique Active Users in the past 30 days and a valuation between $10Bn and $15Bn.
  • This translates to between $250 and $375 per active user.

… a combined valuation of $285 million! $250 valuation per user! Hard to believe, but that seems to be the reason why Microsoft decided to invest in Facebook. (A small amount that will dent their annual report like a rounding error.) So is this a real deal, or is it a hype?

The optimism of some of the widgets programming marketeers are so optimistic, that it makes me sceptical.

„We have the potential opportunity to create the new MTV,” (iLike)

Mr. Lorenzen values popular Facebook applications like Where I’ve Been (lets users show which countries and states they have visited), Texas Hold ’Em Poker and What’s Your Stripper Name (suggests what you and your friends would call yourselves on stage) at around $2 million each.

Most hope to either attract Facebook-users to their website and offers, some might publish ads on their widget canvas. But will that really be enough to sustain these valuations?

On a side note: If advertising is the model for generating any revenue, Facebook might actually perform much worse than other sites, because people are so familiar and engaged with the existing contents/widgets, that ad banner blindness will be much more common amongst these users than visitors of other media sites. That’s at least what some people say, and I think that is a reasonable assumption.

However, it could also imply that any click on a banner on Facebook is probably much more valuable than clicks on other networks. Simply because it wasn’t an accident or pure boredom. The user is actually interested in whatever the banner offered.

Soon enough, apparently, Facebook will start targetting ads using information they take from the profiles (makes sense, doesn’t it?), so ads should also become much more relevant.

The whole phenomenon of Facebook widgets definitely needs to be watched carefully, and I don’t think it would hurt for companies to test the water publishing small widgets and measuring the effects. But I am still sceptical about this exuberant optimism. Prove me wrong, I would be very much delighted to report on successful tactics any time!

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Social media sites and the impact on email marketing

At DMNews, there is a column about the impact of social media on email marketing, which is quite interesting:

Today’s younger generation is the single best predictor of future behaviors. And right now they are leveraging multiple social Web sites: MySpace and Facebook to chat with friends, Evite to send party invitations and LinkedIn to stay front and center for new business relationships. E-mail for these users has become a tool used strictly for the purpose of collecting business information — special offers, promotions and business information.

As we increase our usage of social networks, our use of e-mail will inevitably decline, reducing the success of e-mail marketing campaigns. Marketers need to take the time to understand what sites their users are comfortable in and then evaluate marketing opportunities in those spaces.

I don’t think it’s only that. (But it will be a large factor.) The other email killer is things like skype and other chat tools, mobile phone messaging, and RSS.

For any communication with your contacts, ther is a better way than email. Or at least there will be. With spam still filling most people’s inbox, they will undoubtedly move to other, uninterrupted channels and only open their email accounts to separate the „bacn“ from the spam.

So email marketing is not dead, as people will continue to use it. But in the next 5 years or so, we’ll probably see a shift in usage patterns, decreasing the target audiences attention to email. It is now, that we need to test the alternatives, so that we have working tactics in the future.

Try out producing widgets for facebook, offering RSS feeds (this should already be a no brainer!), sponsor chats and communities (or offer them yourself), and may be start advertising on the long tail of the web…

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Facebooks future targeting strategy

So who is surprised about this move, really? Wasn’t it obvious that at some point, Facebook will leverage their knowledge about their userbase? As it says in a Wall Street Journal article:

Social-networking Web site Facebook Inc. is quietly working on a new advertising system that would let marketers target users with ads based on the massive amounts of information people reveal on the site about themselves. Eventually, it hopes to refine the system to allow it to predict what products and services users might be interested in even before they have specifically mentioned an area.

Sofar, targeting was only possible in terms of age, gender and location. In the future, targeting variables can include anything that users enter, e.g. personal information, planned events, music preferences, and much more, especially if information from widgets is included…

This sounds much like the well-feared transparent consumer. But apparently, Facebook will at least not disclose any information to advertisers:

Facebook would use its technology to point the ads to the selected groups of people without exposing their personal information to the advertisers.

The only thing that strikes me is the fact, that the ads will be within the news feed area. Of course, that’s an area with lots of attention, but I doubt users will like that! But, according to that article, Facebook needs these iprovements, because people spend a lot of time on the site, but don’t click on the ads…

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More on advertising on social networks via widgets

Some more ramblings on advertising on social networks, as I have written about it lately already: Sean Carton also thinks that advertising on social networks won’t work properly using regular ads. His point of why widgets might be the better solution (and I agree):

This is why widgets have been getting so much play lately: they don’t intrude on the user experience. Yeah, they’re branded. Yeah, they’re obviously a product of crass commercialism, but when done well they enhance rather than detract from the experience. They can become part of the conversation you’re having with friends and acquaintances, not an interruption of that conversation. Are widgets the answer to how advertising can work in social networking?

Not at all, but they’re a beginning. The answer will become apparent when we think outside of the ol‘ display advertising box and start to imagine ways we can work with the essential nature of social networking, rather than against it.

How can we join communities of interest in an authentically helpful way? How can we give consumers the tools to facilitate their conversations about our products or services (conversations they’re going to have anyway, with our without our help)? How can we help connect them to get help, advice, or suggestions from others (Dave Evans has a few good ideas)? How can we make it easier for true believers and brand fans to do the selling for us (or help recruit new fans)? How can we work with what’s going on rather than against it?

The question is, whether this is really a solution for all advertisers. Also, these considerations, same as the debate about the effectiveness of contextual ads only focus on the click rate as the only measure of success. I know, I know, we’re in the interactive space, so why go back to the old ad measurement models?

But then again, an eyeball is an eyeball and nobody can deny the value of attention of these eyeballs. Even if the click rate suggests failure, the message might have stuck. Don’t you think? Otherwise you would reduce the awareness and brand building capabilities of the online space to a story of how many people clicked, not how many people saw and remembered the message. That can’t be right, can it?*

But, going back to Seans point: yes, let’s rather entice the consumers with something of value. Something that provides this value at a point in time and (web-)space, where the consumer will most likely associate the best positive times with your brand because of your contribution to their needs and preferences. If it can be done best on social networks providing widgets (at least for now), then think of a good idea and go do it!

(*I am not oblivious at all to the fact, that interaction with the ads (i.e. clicking and interacting with the subsequent pages) will reinforce the message, make the whole awareness campaign x-times more successful!)

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Marketing with widgets on social networks

Whoever doubted that widgets can be a fantastic tool for marketing? Well, probably anybody who didn’t think that a widget can actually provide a fun „anything“ sponsored by a brand.

Here is a short article about a Red Bull Widget that seems to be the killer app for all those people bored at the office (during lunch break only, of course).

redbullwidget.jpg

It is an online version of Rock / Paper / Scissors. You can play this via the widget against other people from the facebook network. Great idea!

This might be the start of a whole new stampede of marketing widgets on facebook (and others).

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