Does Advertising and “Socializing” Mix?

by Jay Deragon on 12/26/2008

The predominant revenue model for all this social stuff is advertising. eMarketer released a report saying: This year marketers will spend $40 million in the US to advertise to a business audience on online social networks, and that is just the beginning.

As the number of business users of social networks increases, advertising expenditures will rise accordingly,
reaching an estimated $210 million in 2012.

The B2B Marketing on Social Networks report analyzes the growth of business-oriented networks.

Given the popularity of LinkedIn, where the audience has more than doubled in the past year, and the fact that even Facebook has become a de facto business network, as more businesspeople join, B2B marketers are reconsidering the social network environment.

As the number of business users of social networks increases, advertising expenditures will rise accordingly, reaching an estimated $210 million in 2012.

In addition, marketers will spend far more over the next few years to create and manage their own social networks for business customers, partners, suppliers and vendors.

Does the Ad Model Work?

Jordan McCollum writes in Marketing Pilgrim:Today there are a few stories floating around about why advertising, which seems like the natural and possibly only way for social networks to make money, isn’t working out so well. Techdirt and BusinessWeek both cover advertising on popular social networks, and reasons why users just aren’t jumping to click those ads.”

“Techdirt reminds us of long-standing deals that make social networks into ad publishers for search engines (namely Microsoft/Facebook and Google/MySpace). While the “‘upfront’ monetization” from these deals is definitely a good thing for the social networks, Techdirt explains:”

However, all the details suggested that on the backend things were pretty ugly. It’s not hard to figure out why. Ads work on Google because people are looking for information. They do a search, and if the advertisement shows information that helps with the query, that makes everyone happy. However, when it comes to a social network, usage is quite different. People aren’t looking for information about products — they’re looking to communicate with friends. In that environment, ads are seen as an intrusion — which is the exact opposite of ads in a search world.

“BusinessWeek is also focusing on the failure of ads on MySpace. BW looks at a company that had initial success with a 1% CTR in 2006, but whose CTR fell to 0.1% in 2007. “Users became more or less desensitized to the advertising,” cautioned the company’s former CEO, Mark Seremet. “You won’t make money on it.”

“BW points out that MySpace’s division saw an 87% surge in Q4 2007, but taken with Techdirt’s points, this may only prove that the only people profiting from social network advertising are the networks themselves. Google CFO George Reyes reported in the Q4 2007 earnings call that Google has “found that social-networking inventory is not monetizing as well as expected.” Google paid out more than a quarter of MySpace’s parent company’s revenue; this is part of where Google’s own earnings fell short.”

Besides Ads What Revenue Will Social Media Produce?

Those things that are scarce in the “free” market are those things that represent the greatest value. You can charge for value or earn revenue by enabling others to earn revenue from free. Advertising is the old media model, free converted to revenue is the new media model.

Google earns in excess of $4 Billion a year providing free technology that enables others to create revenue. Googles earning come from the power and value of enabling others to generate revenue. 99% of what Google offers the market is free while 1% of their offerings are aimed at enabling people and organizations to generate revenue.

Just having the knowledge of “how” free works doesn’t mean an individual or organizations knows “how to use the knowledge” for their benefit. The difference between gaining knowledge and using it is the answers to “how”.

For business the Socialutions path to revenue lies in the answers to “how” to use “free” As an example:

  1. How to increase customer satisfaction
  2. How to create market differential
  3. How to lower operating cost
  4. How to increase sales
  5. How to create new markets
  6. How to be “social”
  7. What free value would create the most revenue

The list goes on and on representing normal questions business leaders usually ask themselves regularly. However the system of creating value has changed and the path to revenue lies in two new dynamics and the knowledge of “how” is the value which seems to be scarce. The dynamics are “Free and Social” but the business mindsets are locked on revenue and anti-social processes chasing revenue, advertising.. Time to set your mind “free” and learn to be social and produce revenue from free.

Get it? What say you?


mike miller August 23, 2008 at 9:52 am

I really appreciated your challenge on how to use eadds on social networks1 thanks for the information.

Rob van Alphen August 23, 2008 at 5:37 am

reading “does advertising and socializing mix?”

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