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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?

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