medialifemagazine.com
Leveraging the might of social media
By Diego Vasquez
Jul 23, 2009 - 1:05:50 AM
In this down economy, people are eager to connect online, which has led to huge growth for online social networks like Facebook, Twitter and LinkedIn, where users can network for jobs or simply whine to sympathetic ears. But even with all those users, social networks continue to be dogged by one big problem: Failure to monetize their audiences through advertising. Earlier this month, research company eMarketer slashed its forecast for social network ad spending from 10.2 percent growth to 3 percent, to $1.1 billion. It’s not that these sites aren’t making any advertising money; top site MySpace will take in $495 million this year, eMarketer predicts, even with its traffic dropping and a new CEO taking the helm. It’s simply that the sites should be making more. Facebook has been valued in the billions of dollars and Twitter in the hundreds of millions, and yet their ad revenue is a tiny fraction of that. Some analysts say social networks have CPMs of barely a few cents, based on their huge network of users. Still, the sites are aware of the problem and they’re looking to solve it. Havas Digital’s Micah Nyatsambo, director of social media, and Rob Griffin, director of data, search and analytics, talk to Media Life about how social networks’ ad revenue can grow, why it may happen soon, and what’s next for once-mighty MySpace.
Why have social networking sites thus far struggled to monetize their huge audiences?
Griffin: From the commerce side of it, there’re two evolutions going on. These sites, assuming the most popular are Twitter and Facebook, learned how to educate audiences to control privacy, and that category is slowly replacing why people search.
People use search for three basic reasons. One is discovery, learning about something new. As I learn about something I shift into informational searches. Once I know what I want, I’m using it as navigation.
Google uses all three because they have a great algorithm. But social networks are starting to replace those first two phases. So far they are not able to put a value on it and connect with consumers who are using it.
Nyatsambo: One of the biggest things causing issues for big social network platforms is a lot of reasons people spend time there is not really to discover. They’re not there to see what this latest ad on Facebook is telling me. They’re there to spend time with their friends, share stories, etc.
There was an interesting point I read lately that Facebook users spend over one billion hours per month on the web site, and it really is about connection. So a lot of sites have had difficulty breaking through that and providing ads that reach the audiences that are on Facebook.
They really do have a lot of amazing data, and they’re pretty close to finally being able to crack that barrier.
Griffin: Where they’re cracking it is not even ads on their own sites, they just realize they have valuable data (about users). But they’ve yet to crack the code of how to use it on their own sites.
Do you see this changing in the near future, or has it already begun to change? Why or why not?
Griffin: I think it’s starting to change a lot because of the way they’re approaching their communities. I always joke that MySpace has become the land of pedophiles and no-name bands. By the time they learned about privacy settings, the community had lost value.
People are starting to figure out how word of mouth works in the digital community. They’re realizing what kinds of brands can work with ads in the community, and which work better as word of mouth.
Nyatsambo: The other piece is behavioral targeting. If we see you do an action, how can we anticipate what you or your friends might be interested in? That allows you to do much better targeted advertising within social networking.
Another example that worked for me is, I was on MySpace today and they served me an ad for the band Thievery Corporation, that they’d be showing up on a certain site and certain time if I wanted to listen. It caught my attention, so they’re looking at my music profile and serving me targeted ads, which I thought was interesting.
Is advertising the right business model for social networks?
Griffin: I think advertisers and brands can’t take an ostrich approach. However, depending on who you are as a company, maybe all you want to do is listen.
For some, maybe it is participating in the community. For some companies it does make sense to do a Facebook app. You can’t ignore it; you just have to make sure you know what you want to do. If you’re gonna play ball, be ready to follow through and keep it fresh and keep it real. The worst thing you can do is turn it on, get crushed, then freak out and shut it down.
Nyatsambo: The latest study from Charlene Li at Altimeter found that the top 10 or 20 brands that were engaged well in social media were doing better financially this year than they were when they weren’t engaged.
Do some social networks' broad audiences actually work against them in any way, because it is so difficult to target ads to them?
Nyatsambo: With MySpace, it does well for one thing, and that’s entertainment. eMarketer says it’s still in the top 10 social marketing sites in the U.S.
With Facebook, yes they have large numbers, but I think they’ve done a good job of letting people create groups you can become fans of. If you want you can really drill down to I’m a fan of, say, a local radio station in New Hampshire.
Twitter is totally different. You don’t really have friends, you choose to follow whoever. It’s more one-on-one and not a community. So it’s a much more open platform where I can choose to hear what Dell has to provide me if I’m interested in their computers.
So, to answer the question, of the large communities, two of them have figured out ways to make relationships as granular as you want or as macro as you want to go.
Do you foresee any social networks successfully making the transition to premium sites, or is that a model that's too hard to implement after years of being free?
Griffin: I’m not sure I could see that happening. But say if The Wall Street Journal, who already has a paying subscriber site, maybe in some scenarios where there’s premium content and incorporating premium content into social networking. But I don’t think I could see something like a Facebook doing it.
Maybe something like LinkedIn, where you can pay to email certain people. But for Joe Consumer to slap down money for Facebook, I’m not so sure about that.
Can more vertical social networking sites do a better job of monetizing their audience?
Griffin: I would probably think so at face value. It’s a little easier if I’m using a vertical online community, I’m already there to discuss specific services or products, so I’m already more engaged than, say, if I’m chatting with friends on Facebook.
Nyatsambo: In some sense you can look toward Federated Media [a publishing company that connects content providers with brand marketers] and how they’ve monetized blogs. If I represent all these popular blogs, I’m able to get them much better CPMs than they would have by themselves.
News Corp. has indicated that MySpace will soon morph into an entertainment-focused portal of sorts, after lots of turmoil during the first six months of the year. What prompted this change in direction, and is it a wise move?
Nyatsambo: Somebody did a study of who signs up for MySpace versus Facebook, and Facebook got more yuppie types and MySpace got the more earthy-crunchy types.
MySpace does entertainment pretty well, and in this particular case trying to emulate another Facebook would not bode well. So being an entertainment-associated portal is probably a good move. A lot of the best case studies for them have been entertainment, leveraging well-known music artists to promote brands.
Are advertisers still worried about the experimental aspects of social networks, i.e. uncertainty about what their ad could be posted next to/associated with?
Griffin: Absolutely. They all want to play in it and they all want to be apart of it, but they don’t at the same time. Only a small percentage actually “get it.”
In an article I read in Fortune, David Ogilvy once wrote seven principles on a napkin, and one is “Stop cutting the quality of your products in search of bigger margins. The consumer always notices — and punishes you.” And another was “Bear in mind that the consumer is not a moron. She is your wife. Do not insult her intelligence.”
Anything that I put out there in the community can come back to me in a blink. The ones that aren’t honest with themselves aren’t the ones that want to play with social media. If you’re going to be genuine, you can take the ebbs and flows of it.
Target did a whole back-to-school thing last year and it did great, and then Wal-Mart tried to do something similar and got crushed. You have to be rock solid in who you are and who you want to be to be successful.
Nyatsambo: I read somewhere that in five or 10 years, those participating in social media now will be doing well, while those who aren’t won’t. If you’re not participating, it says you don’t care enough to respond to what I have to say online. Most consumers will look at it as, this brand doesn’t care about consumers, because they aren’t participating where the consumer is.
© 2010 Media Life