AdBook, AdSpace and AdLinked

There was never any doubt about the ability of social networks to attract a large and loyal audience. The question was always about how could you monetize the “reach and frequency” of these D.I.Y media sites.

There are six steps to profiting from building a Freemium social network.

 

6 Steps to building a Social Network

 

The answer to the question will they pay is usually no, they won’t pay for the Free Service. So the discussion in the board room very quickly becomes about either:

1. Selling virtual goods, and/or
2. Putting ads on the menu.

The idea of selling virtual goods has its champions but in reality advertising is now recognised as the primary revenue model for building a successful Social Network business. As FaceBook CEO Mark Zuckerberg has said on more than one occasion (e.g. See Wired Facebook And Twitter Hunt for Revenue) “Facebook sees advertising as its primary money-making strategy”. And why not? There is no shortage of stats and press releases on the growth of advertising on Social Networks. Some reports put the total social network advertising spend being as a high at $3.2 billion.

Social Networking Sites Account for More than 20 Percent of All U.S. Online Display Ad Impressions, comScore

Social Networking and Blog Sites Capture More Internet Time and Advertising Nielsen

Facebook Advertising: It’s All Local Mashable

Is the big Facebook advertising experiment working? Venture Beat

Local Ads Moving to Social Networks Borrell Associates

You’ll also discover there is no shortage of informed professional commentary on how to profit from the Social Network Revolution.

For example we have Razorfish’s six “Cs” social influence marketing (SIM) in Content, Customization, Community, Conversation, Commerce and Commitment. (See Razorfish Digital Outlook Report 2009 [PDF]) and the idea that consumers will be shaping the brands more than the brands will be shaping them. (See Razorfish’s viewpoints on Social Influence Marketing)

So the question needs to be asked: Is all this social advertising delivering the results that advertisers are looking for? Perhaps not as we can see from these recent articles

Users want to communicate with each other, not necessarily with brands. Social Networkers Aren’t There for Ads – eMarketer

So far, however, Facebook apps from brands like Coca-Cola, Champion, Ford and Microsoft are as popular as desolate Second Life islands. Apps: The Newest Brand Graveyard – Adweek

[The idea of advertising on social networks] is stillborn. Of all U.S. Internet users, only 3% would allow publishers to use contact information for advertising. – IDC

[Even Razorfish have acknowledged that] Although there are many formats, such as so-called app-vertising, hypertargeting and engagement ads, we haven’t found what really works. Razorfish Digital Outlook Report 2009 [PDF].

[Updated 2-4-2010]
“Google has the perfect revenue-generating combination:  people come to the site often, leave quickly, and often have purchasing intent. Facebook has tons of visitors but they generally come to socialize, not to buy things, and they rarely click on ads that take them to other sites. Facebook is like a Starbucks where everyone hangs out for hours but almost never buys anything.” – Chris Dixon

So what is my take on advertising on social networks?

At the most fundamental level I’ll stick with my basic premise. Putting ads on the menu won’t pay for lunch and that doesn’t matter if you are running a newspaper, a blog or a social network.

Secondly, as Forbe’s Taylor Buley has pointed out in Facing Up To Facebook’s Value, you need to push a lot of ads to make it pay.

Thirdly, I have always thought there was one fundamental reason why you wouldn’t want to be seen advertising on social networks. You need to ask yourself do you really feel comfortable exposing your brand in a place and at a time where you don’t control the message flow.

After all do you really want your brand to be there when Harry tells Sally the romance off? (See Facebook fuelling divorce, research claims)

When it comes to social media the advertising community still needs to discover what actually works. People forget that when Television and Radio first arrived advertisers create their own content. It was advertisers who created the soap-opera phenomenon and the game shows. The fact they have failed to do it on the web say’s more about the ingenuity of modern advertisers than it does about the limitations of the internet or the mobile phone as an advertising and promotion platform.

They need to discover new ways of profiting from the everyday exchanges of their customer’s increasingly fragmented mobile lives. (See Imagine all the people, living a Mobile Life)

Now that FLINK! is king (at least online) advertising also needs to discover a new set of metrics. It’s time to forget reach and frequency. We need metrics that reflect engagement and reaction. After all we are dealing here with the attention-deficit generation.

My final take on the Social Media phenomenon is simply this. Brands already have their own social media platform. It’s called a loyalty program. If Brands want to leverage social media then they should be looking to leverage it within a framework they control. That’s why I think the ideas I wrote about in my post Are your customers packing the new plastic? are so important.

In closing let me point out that despite all the hype over the past 2 to 3 years Social Networks are not a new phenomenon. (See Digital Trends – History of Social Networking) Originally we had the online communities in America Online (AOL) and CompuServe. Then with the web came Classmates, SixDegrees and GeoCities. Web 2.0 has brought us MySpace, LinkedIn and FaceBook. So I guess the last question that needs to be asked is what will the next wave bring us?

The answer, like so much about what the next wave of the MobCon will look like, can already be found in Japan.

In 2008 Razorfish revealed in its Razorfish Digital Outlook Report 2008 [PDF] the existence of a mobile only community called Mobagetown

Launched in 2006

• 7.5 million members at the time of publication
• 13 billion page views per month
• Bigger than MIXI, Japan’s number one online social network
• Free content, news, games and search
• Subscribers pay for avatars and virtual items

The “Freemium” Mobile social network business model sounds familiar doesn’t it?

Other posts in this series on the monetization of Social Networks

• FaceBank, MyBank and BankedIn
• Facefone, myPhone and LinkedTel
• FaceGames, MyGames and GamesIn
• FaceCover, myProtection and LinkedIndemnity
• FaceCenter, myBrand and the LinkedInLounge
• What’s on the MobCon Radar for the Social Networks?

Further Reading

Modeling The True Value Of Social Networks: 2009 Edition – TechCrunch

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