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Social Networking Advertising – It Will Be Even Harder than we Think

Written by charles 44 Comments on Social Networking Advertising – It Will Be Even Harder than we Think

I’ve had a few experiences in the past few weeks that continue to bolster my belief that monetizing social networks and communities will continue to be a lot harder than people think.

1. I posted a question on Twitter about the difference between two different sets of Bose headphones and got a lot of information back that ended up influencing a purchase decision.

2. I updated my Facebook status with a request for some restaurant recommendations and I got a lot of good ones, one of which I ended up using.

3. I updated my Facebook status to let folks know I had bought some tickets for a comedy show and two of my friends ended up buying them as a result.

In each case, I was part of a transaction that was socially influenced (as many were even before the advent of social networking sites). And in each case, I had a hard time envisioning how either of the services in question (Facebook and Twitter) could have laid claim to a portion of the resulting transaction. Judging by the activity I see within my own network, there are a lot of my friends using social networks as social Q&A systems to get input, advice, and recommendations in addition to just letting folks know what they’re up to at the moment.

Models that rely on capturing value based on social recommendations, particularly those models which want to tax those transactions by taking a share of the transaction, are going to have a hard time getting traction today. Two reasons why this will be a hard road in the short term:

Neither Twitter nor Facebook had any visibility into the resulting transaction as it all happened out of band from their perspective – the consumption all happened offline and outside of the networks they manage and monitor. I’m not sure how most of these models are going to work if the social networks only have visibility into online transactions and many of these loops close offline.

Even if these networks could demonstrate that they were driving referral behavior based on social interactions, why would advertisers want to pay for the resulting transactions?
Google can charge advertisers for AdWords placements because they are the intermediary that actually connects users and advertisers. In the social networking context, though, Facebook and Twitter aren’t actually acting as intermediaries – they’re providing a platform that allows for direct, user-to-user communication. If you’re not an intermediary, it’s hard to extract a fee. And if an advertiser doesn’t have to pay for the referrals they’re getting, why would they want to do so?

Comments (44) on "Social Networking Advertising – It Will Be Even Harder than we Think"

  1. agreed it's difficult, although if the off-network referral mechanism is powered by friend list & relevant targeting provided by Facebook (or LinkedIn, or MySpace, or Google / Microsoft / Yahoo / AOL using email lists), then it's possible that an affiliate or other txn-related fee might be possible.

    that said, i agree it's challenging… made even moreso by the fact that multiple parties will be gunning for those revenues, and the friend lists info & targeting assets aren't necessarily proprietary.

    thus even if they *can* figure out a way to charge for them, there will be competitive pressure to give it away for free in order to gain traction / volume.

    i wrote a little bit about business models for social networks a few weeks back here:
    http://500hats.typepad.com/500blogs/2008/03/bus…

    also more specifically about how user logins & messaging data stores from Yahoo/MSFT/AOL/Google could also be used in this way:
    http://500hats.typepad.com/500blogs/2008/03/web…

    on the other hand, there's significant optimism for an increase in resultant txn activity due to social networking behavior (as you note from your examples), and the likely big winner there is probably the small- & medium-size merchants who can't easily implement their own social networks, but could borrow/utilize acct infrastructure from Google, MSFT, Yahoo, Facebook, MySpace, or others.

  2. Completely agree, Charles. Facebook tried to take a bold step with Beacon in this area, and the rest was history. Of course the Beacon flop wasn't because of the issues you highlight, it was because of misguided execution.

    Regarding being an intermediary: Facebook and MySpace have created application platforms that allow brands to be “invited in” to the social graph. But it's social application providers like Zazzle (http://zazzle.com) and SplashCast (http://splashcastmedia.com) that are the intermediaries for these transactions, not Facebook and MySpace.

  3. Bingo. Facebook and other social networking platforms are the new email, IM, SMS, etc.

    It's about messaging. Assume email was locked up behind a proprietary vendor for historical reasons. Why would advertisers pay when one of my friends sends me an email recommending me a product?

    The only difference between Facebook and email, IM, and SMS is that it delivers messages passively while the other require active participation on at least one end.

  4. I get what you mean after I read twice.

    What if advertiser is one of a hidden twitterer and push their ad in our tweet list? I mean ad is one form, social recommendation is another.

  5. One obvious answer is 'brand advertising'. When Ford shows you their latest travesty in a commercial, they're not expecting you to click through and purchase it online – they're branding. Google's been working on building their branding advertising initiatives for years, now.

    Another answer is that all reviews started out as being unwelcome on the net. Companies like http://www.bazaarvoice/ seem to be having a go a recommendations and reviews, and they're someone convincing folks that this is a good thing. I think there's every reason to believe that Facebook could take over the role of a Bazaarvoice in the 'social graph'.

    I think the technical details are not so difficult. What could be difficult is more advertiser-related talk than I know about – things like crappy CPMs at sites like YouTube, etc. There are probably some good reasons for those low rates, but I haven't seen any convincing explanations in the tech blogosphere that I inhabit.

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  8. Kind of, but people welcome ad inside episodes. Even not welcome from deep heart, it's free.

  9. I understand your point, but I think the problem you're suggesting
    is not different from google not being able to charge advertising fee to
    samsung just because a guy searched for the term “samsung” on
    google and got tons of results. In this case, “samsung” doesn't have
    to pay google for the referrals they're getting (through search results).
    Then why would they do so?

  10. Personal recommendtion is not new, we just have new ways to communicate it. The reason it works is that the knowledge you required existed in your network. Advertising will still have its prime use of trying to inform your choices – the real problem is the lack of granularity in the placement of advertising.

  11. +1 on brand advertising, though Facebook and other social networks have a problem with being really good for brand promotion because so many models would be seen as intrusive or interruptions. So far the “Pages” experiment on Facebook has done a little bit of good on the brand front, but the results to date have been underwhelming. May be Facebook will need to take advantage of its reach and breadth of data to monetize across the Net by selling selective access to said information (and/or being its own ad network powered by its data).

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  14. Very interesting article Charles. It raises a very good question: what is the value of your contributions to these social network? What is your influence on your friends or people who follow you on these site?
    And of course this influence extends beyond just social networks to the entire web like this blog for example. This blog is another vehicle for your influence on the web.

    So back to the original question, how do you measure your contributions or your influence on the web? Well, that's what we try to help you do at http://www.traackr.com. You tell us where you publish content (videos, photos, blogs …) or in what social network you participate and we calculate your Traackr score (popularity and buzz for now) that you can compare with other people.
    Come give it a try and see how popular you are!

  15. Here are a few ideas/observances:
    1) Apart from personal recommendation, these sites already have a targeting advantage for sidebar and newsfeed ads. Facebook should start getting better at making this work over the next few months.
    2) What if these sites polled their audiences about products and services and sent this info to advertisers with the promise of attaching ads to the enthusiasts of their brands? There is a lot of nuance regarding how this would work, but it would boost the brands as well as the ease of associating what each user likes with what they are recommending to their friends.
    3) There is a bit of a false dilemma posited in this post. Just because the recommendation track is hard to monetize, social networks themselves are not left out in the cold, based on all their other advantages.

  16. If you are arguing that these two sites need to be able to monetize this exchange of social capital, you are correct that it could be difficult. But is this really what they are trying to do?

    Facebook is currently monetizing with ads on the website and should, hopefully, get better over time.

    Not sure what Twitter's founders want to do – maybe sell the technology? Be like Slashdot (part of a larger consulting type enterprise)?

    Everything we do does not need to be monetized!

  17. I don't think that implementing a cost per acquisition(CPA)/affiliate model to monetize these transactions will actually be thaat difficult. Sure, there will be business and technological challenges to getting it built, rolled out and actually adopted, but getting advertisers (major concert venues or promoters, for example) to pay a small commission for ticket sales that originate on facebook is a relatively easy sell.

    Advertisers love CPA models because they are (generally) low cost, trackable, direct response marketing channels. And, in pretty stark contrast to CPM advertising models, CPA deals put the risk on the publisher rather than the advertiser. Cost-per-acquisition is the “truest” advertising model, so to speak – it's just the most accurate way to price something.

    A good CPA solution for facebook will make it very, very easy for consumers to participate in the transaction: the process should be a frictionless as possible, and there are most likely some ways to design it so that it actually increases the conversion rate (so that maybe 3 or 4 of your friends would have joined you at the show, for example).

    There are many dollars and massive scale behind this – enough that it will happen. Maybe it really just should, too.

  18. This post seems to use recommendations/referrals and advertising interchangeably. They are different in my opinion. When you posted your Q&As on Facebook and Twitter as in your examples, those apps had no business trying to get a cut from the resulting transaction. What they should have done though is recognise your intention to purchase something and display relevant ads to you. That's all that Google does.

    I think monetising social networking sites should be easy. Leverage social connections to make it easier for users to demonstrate their purchase intentions, e.g. Q&A linked with search and then serve ads (search for Facebook on my blog for more).

  19. Great post, Charles!
    I think you are bang on with your assessment that it will be near impossible for SN to track most transactions that will originate on the network.
    Likely they will need to focus on opt-in beacon-like ads (maybe offer brands subscriptions to access tools to contact/engage profile users) or focus on similar metrics used for TV advertisements (price by impression to target demo and verify results using brand recall and intent surveys before and after campaigns,
    How is Gaia approaching the sensitive issue around advertising to young people?

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  21. Interesting article – There are actually three different types of social network advertising IMO. I actually wrote a blog post about it at http://socialnetworkadvertising.blogspot.com/

    In fact, I have just begun this blog specifically because I believe social network advertising is a great opportunity but not well understood. Charles, I would like to invite you personally to comment on, or submit an article, as you are one of the few who seem to really understand the business.

    Thanks!

  22. plus one
    I added your blog to a bookmark!
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  27. Why the internet will become the only hub of information full stop.

    It doesn’t take Einstein to work out the problem with modern society, be it a problem or probably more so a situation, either way, it’s happened and is always happening. Its compression, and population figures are constantly adding salt to the wound, yet we are humans, this is what we do, it’s our instinct to do so.

    I believe that we can evolve around this, I’m not preaching the word of a reclusive, but this is my method, on avoiding the misery of an external world, I can no longer tolerate. It had taken many situations for me to realise what it was, I no longer missed. Grid locked traffic, argumentative people, queue jumpers, lack of manners, crowds, cost, danger and stress.

    I began to use modern technology to my advantage, the internet and the power of its purpose is absolute, its source infinite, and its rhythm constant. I pledged to myself that I would no longer waste precious time in stressful situations I could avoid and by doing so, would create more moments of happiness within my life.

    I Joined free community websites and forums, and began meeting people through them. I joined hobby groups and began writing a column for single fathers in the area. I was in no way shutting myself away from the world; I was more involved than ever before. I’ve tapped a great well of information and I believe we can all use this to some gain.

    I no longer take car journeys I need not make, I avoid crowded places and the lack of manners that pollute commercial institutions, are a thing of the past. I spend more time with my family, we enjoy free and fresh moments together now, through the aid of modern means, internet pass times. You’ll be surprised to know of many hobbies that exist in this world, which can be sourced through the web and experienced in your own home, in safety and in comfort.

    By utilising the internet for shopping, information, hobbies and pass times, you can scrape back hours of once wasted time, time travel is not possible but time saving is.

    Welcome to the internet.

    I think Marketing has nothing to fear, my seldom thought guys

  33. I have a Scottsdale SEO company that has been doing my Internet Marketing and I am impressed at the amount of search engine exposure I have received and the value it has brought to my marketing efforts.

  36. It's just a words trick, call it social recommendation, call it facebook favorite, as long as it promotes a product or service it's still an ad.

  37. Doing an advertisement with the use of those social media sites or also known as social networking sites is good because social sites for example Facebook and Twitter are mostly visited day by day by many users around the world and the ads have a great chance to be seen, if and only if you a good social media marketing for your ads.

  38. Doing an advertisement with the use of those social media sites or also known as social networking sites is good because social sites for example Facebook and Twitter are mostly visited day by day by many users around the world and the ads have a great chance to be seen, if and only if you a good social media marketing for your ads.n

  40. I know this is late, but with regards to “Even if these networks could demonstrate that they were driving referral behavior based on social interactions, why would advertisers want to pay for the resulting transactions?” wouldn’t they be able to monetize it because they are the medium for the transaction. If they didn’t see the post on that social network it would have been less likely for referral purchase to happen.

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