How to make money from social networking (or not!)
Google’s apparently struggling to make money from serving ads on social networking sites. In an analyst call for the Q4 2007 results Sergey Brin admitted “I don’t think we have the killer best way to advertise and monetize social networks yet, … It’s a big opportunity because it’s so much inventory.”
This must be extremely frustrating for Google:
1. it is the leading platform for online advertising by a long, long shot
2. there is a massive, hyper engaged online audience in the leading social networking sites, that are amongst the biggest properties on the Net.
It seems almost inconceivable that online advertisers are not raking it in. But then again, what if the social networking audience is just not receptive to the traditional click through ad model? After all, for Myspace, Facebook and Bebo usage is about participation within the community and engaging with people you know or want to know. Why then click on ad to be taken off site?
Google seems to have realised that to monetise social networking sites it needs to do more than just put Adsense on Myspace. And more sophisticated targeting should bring better conversion. But taken too far and made too invasive as in Facebook’s beacon and users will rebel threatening the very usage that makes advertising attractive in the first place.
What’s to be done? Is this an intractable problem that will mean social networks even as they continue to grow will stay tantalisingly just outside the reach of online advertisers? If so, how can social networks be monetised?
To answer that question, we really need to think about where the value is in a social network. For me that value is in the connection between people and the exchanges they have in a community – in other words its participation that creates value in a network.
If we accept that, then businesses should be looking not to advertise, but to actively participate in a social network with the objective of engaging customers and creating advocates who will champion them to extended networks. This is what social commerce is all about and its a long way from the mantras of CPM and CPC that dominate the online marketing business today – isn’t it time we moved on?
Posted by Ivan Croxford on February 2, 2008
Tags: advertising, Facebook, Google, myspace, Social networks
I’m a digital strategist and I like building new businesses. This blog is an opportunity for me to air some of the insights, issues and themes that I come across in the course of my work. I’d love for some/any of these to be picked up as part of the broader conversation on digital disruption.
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I find it ironic that the economics of Social Networking are so much bigger than any potential advertising revenue from the sites themselves yet the latter keep pouring their brilliant minds into a channel that will likely never pay off. Google, Yahoo! et al should have realised this by now. Microsoft love’em or hate’em appear to have grasped this. You can bet that they’re not focussing on the ad revenues when making their bid for Yahoo!
Microsoft does seem to be more sophisticated in the way they approach monetising social nets, but that does look like better segmentation and ad targeting. What are they doing beyond ads right now?
What should be troubling the likes of Google is that some of the best examples of money making in consumer social nets, such as Kate Modern and lonelygirl15 are really just old-style serialised entertainment with a twist. I would have thought Yahoo! as a media company should be well-placed to do more here. Let’s see!
[...] But if AOL just looks at Bebo’s enormous user base and then thinks it can pump ads into the community without a relevant context or engagement it will be sorely disappointed with the results as shown by Google. [...]