Was just trading emails with some folks about social networks.
The big problem with social networks is the business model. It is clear that users are not willing to pay for social networking sites like MySpace, Facebook, and Friendster. If any of these sites started charging they would be replaced with a free option. That leaves advertising as the business model.
However, when people are on social networks they have two choices:
1. Interact with people: flirt, find a date, find a mate, hook up, make friends, etc.
2. Click on advertisements.
Very few advertisers are going to be able to beat out the desire for people to hook up--unless of course they have a better way to hook people up with other people. For example an advertisement on MySpace for Match.com that says "meet people in your zip code" might actually convert well since folks are in the "hook up" mindset.
Compare that to people being on a vertical content site like Autoblog. When you're on autoblog you're in "consume auto information" mind set. As such, you're highly likely to click on an advertisement from VW or BMW. Reading the ads in a car magazine is as interesting--many times--as reading the stories. Sometimes the ads have better information, and they certainly have better photography.
This takes nothing away from social networks and their amazing traffic. However, the fact is social networking is a bust for advertisers today. We've seen this before with chat rooms, listsrvs, message boards, and email clients. They are amazing for traffic, and they are horrible for advertising.
If social networks are going to work for marketers they are going to have to nuke the current model for advertising and do something much more creative.... creative enough to trump the value of hooking up.
I'm glad I'm not in the social networking business... then again, it would be a challenge, and I'm always up for a challenge.
The problem with social networks: they suck for advertisers.
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Reader Comments
(Page 1 of 1)2. Jason I think you are wrong...
I run plentyoffish.com, 400 million pageviews a month and growing. Sure advertising rates won't be $40/CPM for a site like myspace. That is only because each user is viewing 500 pageviews vs 1 or 2 pageviews on a site like autoblog. When you look at the monization per unique visitor you will see that there is a far smaller difference between a site like facebook and autoblog. When google ever gets around to changing site targetting to allow advertisers to bid on a social networks demographics such as age, profession gender etc they will out monitize autoblog on a per unique user basis.
3. Without violating any privacy, I think a smart system can be built to target the user based on their behavior and participation in the communities. How much more targeted can an advertiser get than a member of a community that has self identified as being interested in a topic and frequents the site often interacting around that topic?
These ad hoc networks are only going to get larger and more intertwined, so all y'all capitalists should be lining up to find the right model.
- Jeff
Posted at 6:20PM on Mar 21st 2006 by Jeff Tidwell
4. Jason,
We need to get off this notion that advertising is about clicks. It's not. For adsense, sure, but not for image or animated ads. Some of the most effective ads (in getting me to buy a product or service) have never gotten me to click on them. Several recent good movie ads on sites like Detroit News come to mind. It's not about clicks, it's about conveying a message in the 300x250 space.
Posted at 7:06PM on Mar 21st 2006 by Nick Aziz
5. Hi Jason
Not all social networks are about flirting and purely social interaction. Some allow users to provide advice or tips and are a perfect place to present online-solutions which match to th advice. Take VirtualTourist.com as an example of an online traveller's social network with an advice angle and your argument certainly does not apply. Bundling social networks as only those t "flirt, find a date, find a mate, hook up, make friends, etc" fails to recognise that social networking can happen for other reasons - often quite commercial ones.
I am a co-founder of minti.com which provides a place for parents to share advice and rank that advice. We will be adding a lot more social networking features in the coming months and already the community is working well together (after only 2 weeks) via comments and ranking. This is an ideal place for parent targetted advertisers to show their wares in a relevant space next to advice which mentioned their product or technique.
Keep up the great blogging :)
6. I'll add my comments here as a social networking provider.
Advertising ISN'T the only monetization model for a site. Premium services that are 'micro' payments work as well. Sucks for small guys, but millions of $2 and $3 payments here and there really add up.
We're doing this and are getting positive feedback from our users. We're also partnering with sites in Club Mooble. So, not advertising, but affiliate, if you can see the subtle difference there.
It's rather challenging to monetize this many eyeballs that aren't really looking, if you know what I mean, but I'm always ready for a challenge ;)
Posted at 9:16AM on Mar 22nd 2006 by Robyn Tippins
7. Hey, Jason, how to you get stars by your name? I'm a 0 and I hate that!
I've been commenting here since August so it's not longevity...
Posted at 9:22AM on Mar 22nd 2006 by Robyn Tippins
8. Is MySpace about hooking up? No more than say the 7-11 parking lot the kids in high school hang at. And that's really what MySpace is about, replacing that parking lot, replacing email, replacing stand alone blogging software, replacing the record store.
Not a great place to generate clicks, yes you are right. But its a great place to break a bank, hype a movie or sell t-shirts. Heck I even know at least one person who moved his entire ebay business onto his MySpace blog and cut out the middle man. Why? Because MySpace is where all the customers are...
9. The value of Social Networks is this: People will give you gobs of profile / demographic information on themselves in a way not seen in any other offering. This is Charlene Lee's thesis from Forrester, and having personally built a social network (Zerodegrees.com), I emphatically agree with her. The value is NOT in splatting ads to people in MySpace, but in using those rich demographic profiles in combo with other offerings. Bands have discovered they can profile their listener demographics in MySpace and TagWorld; LinkedIn built a large job board showing how applicants are connected to hiring entities (which you yourself praised in an earlier post); and there is a lot of room left to use those rich SN profiles in an inventive manner. So: Social Networks ARE a shitty business unto themselves in terms of ads used in them, but they are gasoline on the fire of other businesses.
There is nothing else that yields profile info like Social Networks. MS tried to get this kind of info with Passport, which was an utter failure. Why? Becuase it was M$-centric. "Give me you info because we want to use it." Versus what SN's say: "Here -- fill out your profile for your own ego's sake -- because this is what everyone else out there will see." Suddenly, instead of 'fill out this form for us' (the MS approach), people get a chance to talk about themselves, which they inherently love.
So enough of my blathering. You're right, and you're wrong. SN's are not a standalone biz, but they are an integral part of other biz's moving forward.
Wonder what Mr. Gold thinks of this post? :)
Posted at 10:45PM on Mar 22nd 2006 by Mark Jeffrey
10. Woof and Meow! Well said Jason.
At Dogster and Catster we committed to advertising that is interesting to pet owners and it's paying off well. We write about this pretty often in our company blog. Your post even got us to think it further in our light. http://blog.dogster.com/2006/03/22/social-networks-and-advertising
Building object-centric communities and inviting advertisers to become a member of that community (in a clearly stated ethical manner) allows for excellent business as well as a happy and respect community.
Personally I expect MySpace to start making a killing on music and entertainment revenue. Bands are paying MySpace to get huge radio-style play. The user demographic is great for certain advertisers and the user love the site. In the end it's not about only getting to advertise to the actual passion, but having a consistent happy respected user demographic and focusing the advertising in their light.
Jason, I do disagree about MySpace and Facebook being limited to ad-rev only. The minute MySpace offers better features via a subscription model people will join up. Even 1% of 60M would be stunning. HotOrNot showed people will pay $6/mo for the chance of hooking-up. LiveJournal showed people will pay $2/mo to have a better looking page with more features. The Dogster/Catster subscription program is only 9 months old and is doing great.
http://www.dogster.com/subscribe.php
Making a community pay-only would be suicide, but optional subscription is a great addition to the model if the community is big enough.
Posted at 2:50PM on Mar 23rd 2006 by Ted Rheingold
12. All social networks are not created equal... If the owners can identify what niche they're dealing with (and there's almost always a dominant niche), they can find appropriate and effective ways to monetize their sites.
I've never understood why MySpace (for example), doesn't do something to capitalize on their music-centric base-- imagine if they made an easy interface (something like CafePress) to help bands sell their CDs, t-shirts... even concert tickets.
13. Jason, really interesting how do you get this stars? Can answer via mail
Posted at 10:59AM on Mar 30th 2006 by Yoa
14. Jason, when we started with openBC (www.openbc.com) end of 2003 we agreed not allowing any advertisement or spam or multilevel-marketing on our platform. Today we´re about 1 million members. Last month we saw about 2oo million page impressions, which is a good sign for the activity on openBC and of course tantalizing for everyone who want´s to sell something to an active, lively and successful membership.
We are still (every day more and more) happy that we made that committment towards our users - and they appreciate it :)
15. I've just started a website for the West Texas area dating scene - HubCityConnection.com. I had an epiphany awhile back that Internet advertising was not properly reaching the local market. This is especially true for social networking sites like MySpace. The problem has to do with relevance. Advertising on the local level needs to be relevant to the user viewing the advertisement, and placed in such a way as it is beneficial to the user to actually view the advertisement. On my site (still in its infancy, admittedly) it's 100% free to the user, but the advertiser pays for listing. All advertising is placed in a manner that is relavant and meaningful, and not just a bunch of ads that have nothing to do with what the user is trying to do on the site. Since my site is a dating site, I can target advertisers that are related to this demographic - restaurants, bars, clubs, florists, jewelers, even car dealerships - IF the advertising is presented in a meaningful way. The days of shotgunning ads are coming to a close. Mark my words... the new frontier is the local market.
16. I run Yapperz.com and I feel that if you cater to your users needs and provide a place they can speak out loud and interact with others in a local or national aspect everything will work just fine. Bombarding users with ads is not something we try to do. If you run a social site, I believe you will have to integrate a marketing department and sales to fill banner spaces and run your own ads vs using affilliates.
17. They gotta make some profit!
Posted at 8:46AM on Jan 16th 2008 by Backgammon
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1. I just think they haven't developed the right ad system yet. The right way to do advertising on social networking sites is local. You know so much about people that the ads could be amazingly targeted. What concert promoter would miss out on spending a few grand to reach everyone in a certain age group within 50 miles of your venue that lists band X in their profile? Or a record label could advertise to everyone that likes bands similar to the artist that you just launched an album for.
People said the same thing about advertising with search engines before Overture made it a billion dollar business (well and you know Google borrowing their idea).
Posted at 3:59PM on Mar 21st 2006 by Jon Gales