It’s Time to Monetize the Social Networks
Posted by Bob Warfield on November 6, 2007
It’s time to monetize the social networks. They’re near their hype peaks, significant competitive activity from Google is at the doorstep, and they’ve gotten really big and have commensurate large burn rates. MySpace alone has hired 150 people from places like Google, Microsoft, and eBay to focus on monetization. That’s real money to pay 150 salaries for such folks.
How do these sites plan to go about monetizing? So far, it’s all about ad revenues: Facebook is putting up a Beacon and MySpace is “hyper targeting”. The secret sauce is how these sites can improve targeting of the ads to achieve higher clickthrough rates. For MySpace, they’re doing what they call “hyper targeting“, which is using the information available on MySpace about the person to decide which ads make the most sense. Early tests indicate a 300% improvement in response rates, which is not too shabby. Prior to hyper targeting, the only mechanism being applied was demographic, and results were tepid: remember the early reports that ads didn’t works so well on Social Networks? It was through poor targeting of the ads and these folks are hard at work improving that targeting. Social Network profiles hold the keys to all sorts of interesting data: age, gender, location and interests. Moreover, there is the linkage to friends, which will tell, for example, whether the user is part of a larger group with shared interests, a likely indicator that these interests really matter to the person.
Facebook has a plan they call Beacon, which is more ambitious. Facebook wants to partner with retailers in order to collect even more information about what users do when they are off Facebook. They will use this information to target ads even more precisely. In exchange for providing the data, partner retailers will receive a free advertising allowance on Facebook. What’s even more interesting, is there is an attempt to extract an implicit endorsement from the users. This is by way of a notification appearing in the user’s newsfeed that they’ve just purchased a particular item from a partner retailer. This sounds fun, but when you realize it’s actually an endorsement, it seems cheeky to me. Users will have the ability to opt in and out on this, even to the point of confirming each purchase announcement. Just what I need, more Facebook busywork to keep me from doing something useful!
These developments are interesting, and I do believe some will regard them as fun. People love to brag about a lot of their purchases. I suspect most people would opt to advertise an iPhone purchase, for example. But all of this underscores the Social in Social Networking. It gets harder to imagine a lot of this in any kind of professional context. As I watch these events unfold, I am struck by the feeling that there are more and more reasons why one social network is not enough. It’s a natural thing. We behave differently at work, with our friends, with our families, or while on a date. There are sometimes substantial differences even within those broad categories. A one size fits all social network makes it hard to behave differently. And what to do about those who crave privacy? Perhaps private social networks that cater to strict controls make sense. The ability to create your own network that’s just for you and your friends, ala Ning is one possibility.
Meanwhile, the gorillas are spinning up their dynamos to monetize. It will be interesting to see how that goes. The results will likely be the next set of influences on the next big new direction the genre takes.
Facebook Ads Launched: Brands can be friends too. Interesting. This confirms that Facebook users are essentially endorsing brands. I still think the missing link is what do the Facebook users get for their trouble? It’s clear what Facebook and their advertising partners are getting.
Forrester Analyst’s Take on the New Social Net Ad Strategies. Good writeup. Clearly captures the endorsement idea I’ve been talking about and coins the new term “Fansumer”. They’re still not answering the question of why Facebook users will want to be Fansumers, but perhaps their view is to just sit back and see.
Seth Godin on Facebook’s Hotmail Problem: “Any platform that makes ads a distraction or a cost is always going to fail compared to a site where the ads are a welcome part of the deal.” That doesn’t sound good for these new initiatives which will include some of the most distracting advertising strategies yet.