This Just In From Captain Obvious

There's an article this week in the NY Times treading some well-worn ground, namely that advertising on social networks isn't going so well:

Advertisers Face Hurdles on Social Networking Sites

There's not much new in the piece, so if you've already been reading on the topic you can probably skip this one; highly-placed in the piece, for instance, is this earth-shattering insight: "Members of social networks want to spend time with friends, not brands."

Still, maybe there's value in belaboring the point (or, at least, in documenting it in a publication as respected as the NYT). There is this one takeaway, though:

"Brand advertisers on Facebook can try one of two new approaches. They can be more intrusive, but the outcome will not be positive. Or they can create genuinely entertaining commercials, but spend ungodly sums to do so."

I can think of a third approach: don't advertise on social networks. And even a fourth: advertise, but do so knowing that you're advertising for the purpose of brand awareness rather than sales.

Actually, that last point is maybe a little interesting. Facebook and other social networks might be where ads go to die, but there's got to be an oppportunity cost if you don't advertise on those platforms. That is to say, there's a risk in choosing not to advertise on hot Internet media properties -- namely, your brand might come to be associated with old media, your parents' generation, etc. It's probably hard to quantify, but I'd love to see an analysis on an actual cost-benefit ratio of social network advertising, where the cost is obvious (the cost of producing the ad, placing the ad, maintaining the promotion plus any prizes you give out) but the benefit is maybe a little obscure (not just sales but also brand recognition and positive brand associations).

Ads and Social Networking Sites Go Together Like Orange Juice and Toothpaste

Which is to say, people hate that combo. I came across a useful summary to that effect this morning:

Social Networking Sites and Advertising

Here's a summary for those of you who are too busy to, you know, read:

• Consumers have a very low tolerance for online ads
• 29.9% of visitors surveyed will immediately leave a site they see as cluttered with ads
• Ads on social networking sites result in substantially fewer click-throughs, and even those who do click are less likely to make a purchase
• Don't even think about charging customers for an ad-free site; they like that idea even less.

So what's to be done if you're running a social networking site? Frankly, there only appear to be three options (only one of which is good):

1. Hope that your cash in the bank is enough to tide you over until advertisers are willing to pay a lot more for click-throughs (or until some marketing genius develops a much more clickable banner ad)
2. Get really smart, really quickly, about contextually targeting your ad inventory to your visitors
3. Forget about the idea of monetizing social networking, and figure out how to make that a side-project to your core business of selling something else
   

Overall, #3 has the best chance of success. At the very least, it's less dependent on brilliant flashes of insight; those things are great when you have them, but "we'll figure it out later" is a poor excuse for a business model (are you listening, Twitter?).

The bottom line in this scenario is not everything can be monetized. There are times in every person's life when you have your wallet out, and other times when you're simply not interested in spending money. Successful online businesses are likely to be the ones whose services most closely align with those "wallet-out" moments. Social networking sites are trying to swim against that tide, and will continue to do so as long as they're exclusively focused on social networking.

Looking into my crystal ball, here's what I forecast for Web 3.0: Facebook, MySpace, Twitter, Friendfeed, etc.: they will all go away (at least in their current forms). In their place will be a bunch of online businesses that incorporate social networking elements by default. Web 2.0 taught us how powerful the Web could be as a social mechanism, but it was a stop along the way, not a destination.

Coloring Facebook Green

This morning we've got two angles on Facebook's problem of making money. First, from the venerable Wall Street Journal, comes word of a new approach to ads on that social networking platform, namely "engagement ads":

The new ads appear on the main screen when a person first logs in to Facebook. They prompt a user to do something within the ad, such as comment on a movie trailer or RSVP for the season finale of a TV show.

If the user completes the action, such as adding Bravo TV's "Project Runway" show to a personal list of events, Facebook tries to get Bravo's ad in front of more eyeballs by sharing a notice about what the user has done with their friends.

This is clearly a step in the right direction. Engagement ads place the onus on the advertiser to find a marketing angle that is intrinsically social, and thus at home within the context of Facebook and other similar web destinations. Rather than simply putting ads in front of users and hoping for the best, these ads should, in theory at least, make the ads part of the social experience.

Still, they're asking a lot of their users. They're basically requesting that viewers opt-in to their marketing campaign, and you have to wonder what sort of adoption rate they're going to see. If they're advertising something cool and fun -- like the "Project Runway" episode -- I expect they'll get pretty good numbers. If, though, the payoff is lame ("Sign up here to get an exclusive MSN Messenger icon" or something like that) they can't expect many people to take them up on the offer, let alone do so in full knowledge that all their online friends will be pinged with the fact that they have done so.

Meanwhile, Facebook whiz kid Mark Zuckerburg is not concerned:

In public appearances, Facebook's 24-year-old Chief Executive Mark Zuckerberg insists that his company remains more focused on expanding its user base than its revenues. The right business model for the site will emerge over time, he has said.

So traffic is the new profits, after all.

On the other side of the coin, web development house Razorfish has weighed in with their Consumer Experience Report for 2008. (They've published the report in Flash, regrettably enough, but there is a PDF download link.) Things actually look pretty good for Facebook and other social platforms. In Razorfish's survey, three fourths of respondents said they didn't mind seeing ads on social networking services, and nearly half reported that they had purchased a product based on an online ad or the recommendation of an online social connection. On the face of it, this is hard to line up with the estimate in the WSJ article that less than 1% of Facebook's visitors click on an ad, but perhaps with that sort of destination -- where you tend to come back repeatedly, even obsessively, to fine-tune your profile and check on your friends' status -- sooner or later you'll end up clicking on one ad or another.

When it comes to engagement ads, of course only time will tell whether visitors will click on them enough to save Facebook's bacon. But for now they certainly seem to be a step in the right direction; if nothing else, engagement ads force marketers to try to think of ads that are actually engaging, rather than merely distracting.

Lehman's Has Got Your Back

Reported on TechCrunch this morning, Lehman Brothers is forecasting a rosy future for web advertising: $20 billion in growth by 2012. Here's the graph, which is best viewed to the tune of "We're In the Money":

Of course, there's a bit of a catch -- Lehman's expects the hottest advertising category to be online video -- but even with that proviso, it's a welcome forecast for online content in general. I remember ten years ago, when we were all building content-rich sites in the confident expectation that ad revenues would grow quickly enough to justify what we were spending to do so. That didn't happen, of course, and a lot of us ended up on unemployment when the long-overdue market correction finally arrived. But advertising remains the great hope of web content, and growth along the lines of Lehman's forecast would go a long way towards justifying certain business plans.

My greatest fear is that, as the market expands, any advertising windfall will be so unequally distributed as to leave most Internet properties out in the cold. If online ad spend gushes into YouTube's, Hulio's, and Facebook's coffers, while the rest of us are left doing what we can with Google AdSense, then the overall market picture isn't going to be much better than it already is. And, somewhat pessimistically, I have to assume that will be the case, at least initially. Ultimately, of course, a rising tide lifts all boats; the question is whether that will happen quickly enough for your business and mine.