Saturday, February 9, 2008

Revenue heat on social networking and video sites

One trend we're seeing in 08 is closer scrutiny on social networking and video sites to start generating the revenue expected of them when their parents outlayed big dollars to acquire them.

Business Week featured this article this week -

WSJ covered a similar issue here -

Mediapost covered it as well in their Thursday eDM - 'The Past Repeats Itself: Social Media Needs advertising'.

Obviously this isn't a new issue - social networks and video sites have struggled since day 1 to monetise the hype and eyeballs surrounding them ... and in many ways it's been a case of build it and they will come ... or more to the point, spend the money and we'll work out a way to make it profitable sometime in the future.

The Business Week article raises a few key areas (mainly around social networking but also applicable to video sites too)

- Slowing growth on social networks
- Declining response to advertising - lower CTRs
- Google are struggling to generate the revenue required out of their myspace search distro deal - Google's Brin: "I don't think we have the killer, best way to advertise and monetize social networks yet."

If these issues are hitting the States - you have to wonder why the reverberations will hit locally ... AU is probably at best 3 years behind the states and Fox already have reasonable staff levels locally selling the dream of myspace.

For me, the main issues around these properties are

- targeting sophistication. Yes, a lot is talked up around the ways you can target on these sites but very little follow through is shown. It may be novel that I can target 21 year old males who live 15km from the city and enjoy The presents and drive an 83 honda civic but how can I use this to satisfy a business objective.

- low response. We're talking very low ... but the story isn't all bad. However it could get worse if the networks response to lower revenue is more ads per page

- the networks have done a poor job of connecting advertisers and users ... they talk up the idea of UGC and 2 way brand dialogue but it is not being faciliated. No one knows these networks more than the networks themselves, right?

- Social Networks are like accessories - Facebook and MySpace are no different from the nightclub/bar that is the coolest thing in the world in 07 but completely passe in 08. Messenger and Mail are utilities - they don't profess to be cool ... they simply help you do something. Facebook has done a better job of being neutral - Myspace has intentionally aligned itself with culture/fashion/music/movie brands/bands etc and tried to leverage this as 'cool'. Which approach will work?

- For video in particular - what is the advertising model? It doesn't seem to be pre-rolls anymore ... and overlays are being talked up but there's little evidence that shows these will not be as intrusive and annoying. It's been almost 5 years since video was hailed as the next big thing ... you have to wonder if it can be the next big revenue thing.

- With YouTube, I wonder whether if, in isolation, it can handle advertising beyond cheap med rec's? Amazing site, great useability, huge numbers ... but would overlays, brand channels, targeting etc be accepted?

Anyway, I'm all for the pressure that's being placed on these sites through the media and stakeholders. More pressure means more actions, which ideally means better ad products and better client solutions.

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